The Pentagonists: An Insider's View of Waste, Mismanagement

"Science," the Greek word for knowledge, when appended to the word "political," creates what seems like an oxymoron. For who could claim to know politics? More complicated than any game, most people who play it become addicts and die without understanding what they were addicted to. The rest of us suffer under their malpractice as our "leaders." A truer case of the blind leading the blind could not be found. Plumb the depths of confusion here.

Re: The Pentagonists: An Insider's View of Waste, Mismanagem

Postby admin » Sat Nov 02, 2013 1:22 am


9. Reagan's Big Spender Saloon

THE TWELVE YEARS from 1976 to 1988 should go down in history as a time when presidents Carter and Reagan each killed the conscience of his party. The Jimmy Carter debacle seduced, corrupted, and destroyed the ethical authority of the liberal establishment. Ronald Reagan did the same to conservatives who stood for fiscal responsibility and control over the national debt.

When I went back to work for the Air Force, at the end of 1973, I had to resign my chairmanship of the National Taxpayers Union (NTU), which was a lobbying organization. Jim Davidson took over and did an excellent job; by 1980 he had increased the membership to over 100,000. I kept in touch by reading the NTU newspaper, Dollars and Sense, and by talking frequently with people on the Washington staff.

As I noted earlier, NTU's view was that mere tax resistance or tax reduction could not restrain government spending. As the federal deficits kept climbing, NTU decided to back a constitutional amendment requiring a balanced budget. The spenders couldn't waste money if they didn't have it; they'd have to go to the taxpayers for any funds beyond the budget total.

Among our friends were many honest politicians who supported cost cutting. Occasionally they would break the pledge and fall off the wagon, but we forgave them. When they came back from a spending binge, they often sobered up and began to avoid the strong stuff even more diligently. But I thought we'd learned from experience that even the best of them would belly up to the bar at the Big Spender Saloon now and then. This new bunch of Republicans might mean what they say about fiscal sobriety, but then again ...

When candidate Ronald Reagan also came out in favor of a balanced budget, the NTU felt dizzy with success. I'd always been against tying the NTU to any politician or to either party. So I was horrified to see this comment in the December-January (1981) issue of Dollars and Sense:

Whoopie! NTU is a non-partisan organization, but we could not help letting out a cheer at the election results that brought defeat to so many big spenders and opponents of a constitutional amendment to balance the budget....

We have the greatest opportunity we've ever had to really win some great victories which will change the direction of life in this country.

But, as Dr. Johnson said about second marriages, it was the triumph of hope over experience. Ronald Reagan spoke just like a fiscal-responsibility preacher, and he didn't have a red nose, shaky hands, or a whiskey voice. How was the innocent NTU to know that he would become the worst spending toper of all time? The NTU formed the Committee to Back the President and started to raise funds to "get behind President Reagan and help him get his proposals through Congress."

Everything sounded very hopeful. In that same issue of Dollars and Sense, David Stockman, soon to be director of the Office of Management and Budget (OMB) had an article titled "Avoiding an Economic Dunkirk." In it he cautioned that Reagan's proposed tax cuts must be "accompanied by a credible and severe program to curtail FY 81-82 outlays, future spending authority, and overall spending authority." Another wonderful temperance lecture from another plausible preacher.

David Stockman later confessed, explained, and rationalized his yielding to the spender's demon rum and his eventual slide to the gutter in his 1986 book, The Triumph of Politics. He recounted how Jimmy Carter in the campaign of 1980 matched Ronald Reagan's proposals for raising the military budget, promise for promise. By election time each was on record in favor of a 5 percent increase in "real growth" (growth over and above expected inflation), compounded annually, in the bill from the Pentagon.

In 1972 I had been called crazy for predicting that by 1980 the military budget would be $141 billion. In 1980 Carter actually topped that by an additional billion. When Stockman came in as OMB director, he increased Carter's $142 billion to $222 billion annually. The $80 billion increase, or "budget plug" as Stockman called it, was an arbitrary figure. It had been conjured up by Deputy Secretary of Defense Frank Carlucci, columnist George Will, and Stockman. He was haunted by a memory of "the grim footage of the charred remains of U.S. servicemen being desecrated by the Iranian mullahs at the site known as Desert One." That last note is a marvelous example of American simple-mindedness about the whole matter of money and defense. It was stupidity that put the American servicemen into the debacle of the Iranian rescue mission, and no amount of money could cure it.

Now Stockman and his friends were pulling deep on the bottle of popskull. The 5 percent real growth of military spending went up to 7 percent a year -- and, Stockman says, he inadvertently applied the 7 percent to the grandiose base of $222 billion rather than the Carter base of $142 billion! If Carter had generals who couldn't organize a rescue mission, Reagan had managers of the budget who couldn't do honest arithmetic. When Reagan blessed Stockman's crazy budget figures, they became Revealed Truth for a delighted Pentagon. Anything less than the sacred number, it was said, would make us easy prey for the Evil Empire.

Stockman sobered up a little the morning after. (According to one OMB staffer, Stockman was a very quick study and had a great capacity for detail.) In 1981 he began to encourage the staff to bring him ideas about how to squeeze some fat out of the Pentagon.

President Reagan invited Defense Secretary Caspar Weinberger to a meeting to discuss Stockman's package of proposals. After the OMB director made his pitch, the secretary of defense followed with a plea for continuous increases in defense spending. Why? Well, the Russians are coming, said Weinberger.

Stockman returned to his office completely dejected. He called his staff together and told them that Reagan had said, "Dave, two bars can't overrule four stars. Your job is to help Cap get the money he needs." (The mention of captain's bars versus general's stars referred to Captain Reagan's rank at discharge. He spent his part of World War II at Burbank, California, where he helped produce army training films.)

Added to the administration warning about the Evil Empire was the old, discredited argument that military spending makes us rich. The key to the Reagan Recovery Plan was escalation of spending, especially in the acquisition accounts (R & D and Procurement). The FY 83 budget for acquisition was about $104 billion, more than four times the figure at the end of the Vietnam budget freeze in FY 75.

During the height of election fever, Newsweek (October 27, 1980) had taken a poll of popular opinion about defense. To the question "Do you think the U.S. has been falling behind the Soviet Union in power and influence in recent years?" 68 percent said yes, 27 percent said no, and 5 percent didn't know. And to the question "Which is the nation's most serious defense problem: that not enough money is spent for defense or that what is spent is not used efficiently?" 15 percent said "not enough money," 72 percent said "not used efficiently," and 13 percent didn't know. It was a pretty good indication that some 72 percent of Americans were thinking more clearly than their president. Unfortunately, no politician with leadership stature was making an issue out of it.

Ronald Reagan was acting like the man in the Big Spender Saloon who steps up to the bar and yells, "Drinks are on me! Everybody in the house!" The thirsty military spenders almost knocked each other down in the stampede. The horror stories of that era are still surfacing almost a decade later. And, of course, the binge was charged to the taxpayers.

As the new administration settled into the bad old habits, I began to be overwhelmed with calls from closet patriots, mostly government employees but also a few who worked for defense contractors. Most of the closet patriots, I should explain, were "cheap hawks" -- people who believed we could have a strong defense without bankrupting the country.

They wanted to bring to light some of the abuses they saw daily, but they were afraid of reprisals. Jimmy Carter had effectively hamstrung honest people of this kind with his civil service deform act. It was now clear that the "whistle blower protection" was nothing more than a sting operation to trap dissidents and destroy them. No one wanted to become another Ernie Fitzgerald, Henry Durham, or even Anthony Morris, who blew the whistle on the swine flu vaccine debacle and was fired for being right.

Two bright young staffers at NTU, David Keating and Dina Rasor, came to me and said they wanted to start a special project within NTU to monitor the military's extravagance and mismanagement. I'd been much impressed with their work on military spending issues; they were good at translating seemingly incomprehensible masses of expenditure facts and figures into terms a taxpayer could understand, and even better, they were in no way antimilitary. I saw their project as a good way to put the closet patriots' horror stories to good use. Dina was a careful investigator who wouldn't take my unsupported word for anything. She badgered me for verifying documents and reliable witnesses. As her project -- now named the Project on Military Procurement, or PMP -- grew, it seemed clear that it should be moved to another organizational home. The NTU tolerated it but didn't encourage it to become any bigger.

The National Taxpayers Legal Fund (NTLF) seemed an ideal place. Jim Davidson and I had set up the NTLF partly for educational work and partly to provide legal defense for taxpayers who were unjustly persecuted by the IRS. When I went back to the Pentagon, I swapped jobs with Davidson and took over chairmanship of the NTLF, which was not a lobbying organization.

When the PMP moved to NTLF, Jule Herbert, an NTU official went along. That was significant because Herbert had some very generous funders, principally the wealthy libertarian brothers Charles and George Koch. PMP was an immediate success in its new home. The closet patriots liked the conservative aura of the NTLF.

Journalists, more and more intrigued by the Pentagon spectacle, began to come to PMP for reliable information. One unusual thing about PMP was that it refused to receive classified documents. Washington journalism thrives on exploitation (usually unselective) of secret government documents; famous columnists and by-liners have built reputations on it. Readers, presumably, are impressed to read the forbidden insider stuff. In my experience, however, most of these journalists are pipelines for an agency or bureau or service that decides to leak a nominal secret to make a point or get some political advantage.

Just as PMP was becoming effective, a strange thing happened. It was attacked by a majority of the NTLF board of directors. The NTLF had a powerhouse board with former senator Eugene McCarthy as president, Ed Crane (who seemed to represent Charles and George Koch in Washington), some people Ed recommended, Jule Herbert, and Anne Zill, a director of FCG and Stewart Mott's agent in Washington. I was so smug about this group that I didn't pay attention to what was happening.

What I didn't realize was that our big-business financial backers would be happy with PMP only as long as its disclosures just embarrassed big government. When PMP began to get enough clout to generate proposals in Congress for genuine change, the businessmen got scared.

About a year after the PMP move, the project sponsored a conference of cheap hawks, whistle blowers, closet patriots, congressional staff members, and media people concerning practical, near-term remedies for the military spending disaster. Although the conference was successful, Ed Crane stomped out in a rage and shortly afterward wrote to the NTLF board complaining that "the Project on Military Procurement is attempting to increase the efficiency of our fighting machine. From my perspective, it is already grossly too efficient." He also said that Eugene McCarthy believed it was "more important to cut the Pentagon's lean than its fat."

I cite this small battle to point up a very important motivation in the position Ed Crane outlined. The "progressive" big businessmen, foundation people, labor unions, and Establishment liberals, using the same argument as Crane, didn't want to make the military spending machine more efficient; they would back a proposal to start disarming the United States because they knew such an idea would not go anywhere. Secretly they were happy with the benefits they received from big spending.

In the campaign of 1972 George McGovern's backers, too, had been primarily interested in cutting the size of military operating forces rather than in trying to economize. They simply could not grasp the idea that peacetime military spending has little to do with foreign policy or the world situation, that it is largely driven by domestic politics. Nor could they see that they were dealing with a military that projected its grandiose plans far into the future. Once Congress approved the modest start of a weapons system, that system was going to cost us many billions in the years to come. A little thing like the end of a war would not affect the self-perpetuating build-up.

My conversations with the McGovern people had ended when I got this sad little message from them: labor was against the economizing ideas, which would cost McGovern "the Lockheed vote." In the end it was easy for the Nixon strategists to obliterate McGovern's effort on this issue. One television commercial showed a game board set up with toy soldiers, ships, planes, etc. A hand, presumably McGovern's, appeared and swept half the pieces off the board.

The PMP did find another home under the roof of the Fund for Constitutional Government, thanks to its benefactor, Stewart Mott. And Dina Rasor's good work continued.

I had another educational adventure in the early Reagan years. I first heard of an astonishing new proposal when a friend sent me a copy of an editorial from the Memphis Commercial Appeal. Reagan had just fired the fifteen Carter-appointed inspectors general, the "watchdogs" who were supposed to sniff out waste and corruption in the various executive branch departments. The administration announced that it was looking for people who were more than just watchdogs, who were "meaner than a junkyard dog." The Commercial Appeal suggested that Reagan "might look up Fitzgerald and do right by him. Who knows, Fitzgerald might even know a dozen or so other honest people in the federal government who would like to have jobs as inspectors general too." I'd never thought of myself as mean, but I guess some people may have had that impression.

That proposal seems to have started something. Soon afterward I had a call from Tom Scarret, a Washington correspondent for the Newhouse newspaper chain, who told me there was some meaningful support for having me replace the retiring Elmer Staats as comptroller general and head of the General Accounting Office. Senators Hatch and Proxmire backed the idea, as did the NTU.

A friend of mine set up an appointment with Representative Jack Kemp, the conservative supply-sider who was supposed to have convinced Reagan that budget deficits didn't matter very much. Kemp told me that his philosophy didn't in any way condone waste. He took my resume and subsequently wrote to Reagan, saying, "I would like to give my highest recommendation to Mr. A. Ernest Fitzgerald who would make an excellent Comptroller General of the United States." He suggested that Reagan have a talk with me.

Next I had a letter from Congressman Jack Brooks, chairman of the House Committee on Government Operations, and Senator William Roth, chairman of the Senate Committee on Governmental Affairs, saying that I'd been nominated for the job and asking for extensive personal history information. This seemed to be a sign that I was under serious consideration. Under a relatively new law, a bipartisan, bicameral committee of Congress had to recommend nominees to the president.

But when the word got out, the familiar alliance of big military spenders and White House staff hit the panic button. I got the news from Clark Mollenhoff, that ever-hopeful Republican, who had his usual excellent contacts at the White House, that some of the staff were calling me a "communist dupe." My position, of course, was that the people who threw away vast sums of public money and condoned deficient armaments were the real agents of the Evil Empire. Even a Reagan true believer ought to be bright enough to realize that.

What were my credentials for dupism? Clark said the only charge anybody could think of was that I'd once been on the board of SANE, "a citizens' organization for a sane world," which had backed the limited nuclear test ban treaty in the 1960s and was opposed to nuclear weapons testing, the arms race, and the Cold War. As NTU chairman, I'd joined SANE partly to further our outreach program and partly to try to convince SANE that it was futile to think of converting such dedicated boondoggle corporations as Lockheed to civilian enterprise. When my missionary effort failed, I resigned.

My detractors suggested, through Mollenhoff, that I do public penance for having had any connection with SANE. I said that was unacceptable.

When I looked back through the record of my SANE activity, I found that the only aspect of SANE I'd been officially involved in did have something to do with the Russians. On September 14, 1973, backed by strong feelings among the membership, board members Edward Condon, Seymour Melman, and A. Ernest Fitzgerald had sent a letter to Soviet Ambassador Anatoly Dobrynin:

We are disturbed by the Soviet government's chilling persecution of such dissidents as Andrei Sakharov, Alexander Solzhenitsyn, and many other individuals we have considered our counterparts in the Soviet Union....

When Soviet scientists and intellectuals are threatened, jailed, or exiled, we see the spokesmen for detente with humanist values under attack.

When your dissidents are attacked by your government, we are concerned about the kind of peaceful coexistence your government has in mind.

The letter went on to point out that the Soviet Union, secure and powerful, hardly had to get jittery over a "handful of unconventional thinkers." Furthermore, the Soviets and Americans seemed to be "entering a phase of cooperation." We took a few more hard shots at the Soviets for cracking down on their whistle blowers and ended with a stand against any governmental repression of intellectual freedom.

Reading this over in 1981, I wondered long and hard why the Reagan White House could be upset about me. I recalled that in 1973 Nixon was getting so cozy with the Evil Empire that no public-interest organization in the country had been able to persuade him to protest the treatment of Sakharov and Solzhenitsyn. Then I saw a telling sentence in our letter, praising Sakharov for his brave declaration titled "Progress, Co-existence, and Intellectual Freedom." We had written, "Dr. Sakharov's study marks him as a principal spokesman in the Soviet Union for antimilitarism (emphasis added) and the worldwide fulfillment of the Declaration of the Rights of Man." Was it because we had praised Sakharov's antimilitarism that I was now under suspicion at the White House? Could it be anything that absurd?

I remembered the day we had delivered the letter. Sanford Gottlieb, executive director of SANE, and I decided to hand carry it in hopes of seeing Ambassador Dobrynin himself. As we walked toward the entrance of the Soviet Embassy on Sixteenth Street in Washington, an assortment of police cruisers with flashing lights converged on us. There were District of Columbia police cars, Executive Protective Service cars, and other unidentified vehicles. Out jumped a number of young men in dark business suits. Some began taking pictures of us, others seemed to have hearing aids in their ears and to be talking into their sleeves. None tried to stop us, however, so Sandy and I went to the front gate and rang for admittance. We were met by a man of about thirty who could have been a clone of those outside. He had the same clothes, the same expression, the same manner. Behind him were more clones in dark business suits, wearing hearing aids and talking into their sleeves. We didn't see Dobrynin.

Another indiscretion, as Mollenhoff discovered, was my former chairmanship of the National Taxpayer's Union. My candidacy for the comptroller general's job was all but doomed. I took the whole story to the staff of Republican Congressman Dornan of California, known to his detractors as "Mad Dog Bob." Dornan, arguably the most right-wing congressman in the last quarter of this century, to my surprise saw nothing wrong with my activities. He wrote a letter to Reagan, saying:

In my judgment, America's print and broadcast media will judge the Reagan Administration's efforts to control "runaway government" largely by what happens to Ernie Fitzgerald, the man who made the term "whistleblower" an honorable part of our political vocabulary.... I strongly recommend Ernie Fitzgerald for ... appointment as Comptroller General....

Capitol Hill opponents of your proposed spending cuts would be more charitable to your efforts if they saw a Comptroller General with impeccable "bona fides" who could make government programs run better for less money. This is especially helpful, Mr. President, in the critical area of defense, where budget requests have been increased while other programs have been trimmed.

The man eventually appointed comptroller general was Charles Bowsher, Jr., who had served as assistant finance manager in Reagan's 1980 presidential campaign. He was a partner in the Big Eight certified public accounting company of Arthur Andersen and Company, whose clients included General Dynamics Corporation, maker of the infamous TFX, the F-111 fighter-bomber I'd had so much trouble with.


After a while Reagan's "morning in America" began to look like the end of a lot of weary days I had seen before. The administration brought out the two old, dishonest maxims of their predecessors and paraded them as if they were something new: big military spending will make the armed forces strong and will make the country rich. Defense Secretary Weinberger and his deputy, Frank Carlucci, were the talking heads for these slogans.

In the Winter 1983 issue of Directors and Boards, Carlucci had an article titled "An Economic Defense of the Defense Budget." He began by saying, "The current defense program is carefully designed to redress a decade of neglect of our armed forces and restore the military equilibrium necessary for deterrence." Decade of neglect? The defense budget had gone from about $78 billion to over $136 billion in those ten years. What was the man talking about?

Carlucci's first economic argument -- also known as the self-milking cow argument -- was that only 70 percent of our industrial capacity was in use and unemployment was over 10 percent. Defense spending would help us cure this and attain a bigger GNP. Nothing new here.

The second one was the old spin-off argument: defense spending is a stimulus to industry modernization. If there were any truth to that, we would have been six times more state-of-the-art than Japan because, as a percentage of the gross national product, we spent six times as much as they did on defense.

The third point was that the defense industry was the largest trainer of skilled manpower. But Carlucci didn't explain that defense industry "training" was far and away the most expensive in the world. And most of it was of little use in a competitive commercial economy. Further, the slipshod methods used in Pentagon contracts tended to train industrial workers to be professional goldbricks.

The most incredible notion of all those expressed by Carlucci was that defense spending was a cure for our international balance-of-trade deficit. If this were true, our trade surplus would have been far bigger than Japan's or West Germany's. But it wasn't.

I had hoped -- naively, in retrospect -- that the Reagan team would keep its promise for a balanced budget and improved stewardship of the Pentagon. An early sign of that, I thought, was the appointment of Verne Orr as secretary of the Air Force. Some first-rate closet patriots reported that Orr was appalled by the things we had been troubled about and that he intended to make some real improvements. Their optimism only showed that the closet patriots could be as innocent about the ways of bureaucracy as I. We forgot that Verne Orr was surrounded by the larcenous officers of the Praetorian Guard.

When I was finally restored to an approximation of my original Air Force job in June 1982, I decided to test the thesis that Orr was a "good guy." I planned to send him as much useful information as I could and watch how he used it.

Some of Orr's detractors carped that he was unqualified because he'd been "only a car dealer." But he also had an excellent business background, was versed in investment analysis, and had a good sense of politics. He was a rich man and personally secure enough to be above temptations for petty advantage. Best of all, he had a close, longstanding relationship with Ronald Reagan. Orr was a member of the Lincoln Club, an organization of archconservative California businessmen that had given Nixon his start in politics and had backed Reagan. Orr had been a political appointee in Sacramento during Reagan's governorship and had worked in the 1980 presidential campaign. This added up to a lot of clout with the president and I hoped that I could influence him in the direction of cost reduction and control.

My immediate boss, the assistant secretary for financial management, was a young, aggressive man named Russell Hale, who had been a staff member of the House Armed Services Committee. Although he didn't approve of my return to the acquisition business, he took the forced settlement in good enough grace. But he absolutely refused to allow me to report on weapons systems to Congress. He wanted the reports to be handled by a political appointee, not a career man, and certainly not a maverick. I didn't like this arrangement, but we compromised on an agreement that I'd take over the reports to Congress in December 1984, when Hale said he planned to leave his job. I was in a mood to cooperate and get on with the work.

I was given two experienced and well-qualified assistants in Colin Parfitt and Duane Packard, a Ph.D. economist. Colin had been loyal to me in my deepest difficulties, and his current boss was trying to fire him. And Packard's boss was trying to fire him. Hale had solved all his personnel problems by collecting the possible dissidents in one group.

To keep an eye on us, Hale added both a military and a political keeper, although we had no secrets to keep. In fact we wanted our political superiors to know what we were doing. Our political keeper was a young White House appointee, a Mormon named Jim Ririe. He'd been a cost accountant at a plant making plastic garbage bags, a cost-competitive business. Our military keeper was a bright Air Force colonel named Dick Ensign.


I took my olive branch to General Thomas Marsh, in charge of the Air Force Systems Command (AFSC), and explained that I planned to survey the performance measurement systems in our acquisitions programs, especially those for cost control and cost reduction. What programs would he like to have reviewed?

Marsh said one he had in mind was the Imaging Infrared (IIR) Maverick missile in process at the Hughes Aircraft Company plants in Canoga Park, California and Tucson, Arizona. This missile was descended from the older Electro-Optical (EO), or television-guided Maverick, which had been something of a dud. The infrared detector on the IIR Maverick made it possible -- in theory, at least -- to hit a target in dim light or at night.

Both Mavericks, the Air Force's primary weapons of their kind, were supposed to be magic bullets against invading Russian tanks in Europe. The pilot of a close-support fighter would come in, point his plane in the general direction of the target, look at the TV-type monitor in his cockpit to pinpoint the target, lock the Maverick onto it, let fly, and then pull out. Even if the tank tried to evade, it would, in theory, get hit, sort of like those electronic games in the arcade.

Verne Orr had been reading the newspapers, which said that the new Maverick was vastly overrunning its cost and not performing very well. General Marsh wanted to learn at least as much about what was wrong as the reporters seemed to know.

At my request Marsh assigned the AFSC comptroller, Brigadier General Wilma Vaught, and Lieutenant Colonel Stan Kagan to work with us. General Vaught was an old acquaintance of mine, and Kagan turned out to be a very competent, intelligent officer. He'd learned the business while assigned to the ballistic missile system division of the AFSC, and he was now in charge of applying the systems for measuring contractor performance that my colleagues and I had developed in the 1960s.

We traveled by executive jet to Wright-Patterson AFB in Dayton, where the Maverick buying office was located. There we had our first stroke of luck. Nobody had thought to warn them we were coming. By even better luck, all the generals of the Aeronautical Systems Division (a buying division of AFSC) were away at a conference. So we were able to go directly to the analysts who got the performance reports from the contractors, evaluated them, and recommended action.

They were delighted to see us, and I was delighted to hear that my old performance measurement project was alive and well. Within fifteen minutes, the analysts and I had gone through the various levels of reports and gotten to the missile's technical trouble. The cost overruns were displayed. In fact, the performance measurement reports had been signaling grave trouble for over two years. But no matter how telling these analyses were and how scathing the accompanying comments from the analysts, management had done nothing. The military managers tolerated such reports, it seemed, simply for the sake of image.

There was a good side to that, however. Since the reports were never acted on, management felt no need to falsify them. These technicians had continued to operate in their own little 1960s world of relative accuracy and integrity.

That visit was so encouraging that I decided to go to Air Force Plant 44 in Tucson, where Hughes was building the Maverick. Our whole group, except for Duane Packard, was excited by the prospect of doing some worthwhile work with the backing, we thought, of the secretary, the assistant secretary, and the commanding general of the AFSC. As we discussed our plans enthusiastically on the plane ride back from Dayton, Packard became more and more silent. The morning after we got back, he went to the personnel office, filled out his retirement papers, and left before noon.

Packard, an economist, knew something we didn't. He was tuned in to the Reagan game plan of prosperity through unprecedented military spending, and he had seen the real meaning behind the situation in Dayton.

I still believed there must be some truth to Reagan's' loudly announced budget-balancing plans. Besides, I believed that the administration hawks must be deeply worried that their chief air-to-ground antitank missile didn't work, and it cost so much that quantities would be severely limited in any budget Congress was likely to pass.

In Tucson the Air Force plant representative, Lt. Col. Grant Hird, said he had instructions to give us whatever we needed. From Robert McDonald, the civilian contracting officer, I got the spare-parts pricing formula for the IIR Maverick. As was customary, the Air Force had negotiated markups based on whatever Hughes paid for that material plus Hughes's bill for labor, priced out in standard direct manhours, that is, the should-take times Hughes's engineers had determined were appropriate for fabricating, assembling, and testing the Maverick.

For starters, I saw that the should-take hours had been multiplied by a factor of fifteen to twenty. To that bloated figure, fattened by very high rates of pay, were added unbelievable further markups for "support labor and overhead." McDonald and the Hird staff assured me that what I was looking at reflected the actual costs.

I wondered. Then I remembered the case of Mr. Gillette who, it was said, learned that he could get rich not by selling razors but by selling the spare parts, the blades. The company sometimes gave away the razors because only Gillette blades would fit them. I wondered if Hughes, on somewhat the same pattern, had found an accounting gimmick to pass excessive costs on to their bills for spare parts. But Hughes was not doing a Gillette; their overpricing of spare parts was a general reflection of all the overpricing on their Maverick work.

At the time I'm writing about, big military contractors priced spare parts by contractual arrangements called Basic Ordering Agreements, or BOAs. This was a handy means of setting prices for frequent orders for spare parts that were available only from one source without having to negotiate the price of each part separately. The markups on the standard labor and material for spare parts orders would reflect the factory inefficiencies, labor rates, and overhead add-ons that were being accepted for the big stuff at the time the parts were ordered. Spare parts pricing piggybacked on the inefficiencies tolerated and the markups negotiated for the "major end items" -- airplanes, missiles, and so on. The parts prices would reflect the overpricing of the whole assembly.

On the labor side, BOA inefficiency markups on the standard or should-take times to make and test the parts were usually the same as those being used on other work in the shops involved. Then previously approved rates of pay and overhead markups were applied to standard times plus the inefficiency markups to arrive at the "actual costs" of labor. This was passed through to the government after a percentage was added for profit.

As I've described, materials and parts were generally treated as pass-through costs, too. Sole-source suppliers had a positive incentive to be as sloppy as possible in their buying, at least until they negotiated firm prices with the government.

To illustrate how this disincentive works, let's say we're buying a simple, familiar item such as a hammer. (Strictly speaking, hammers and other tools are not spare parts but "support equipment," a distinction I will explore later.) Say the military needs a hammer for its work on a weapon system. If the military is experiencing difficulty "executing the program" (spending the money), instead of ordering a hammer from supply, or, if supply is out, from a local hardware store, it gives the weapon system contractor a contract to "work the problem." In due course the system contractor's large engineering staff determines that, sure enough, the maintenance mechanics need a hand-held device to generate impacts at certain points. They ask a subcontractor, preferably another "established" contractor who knows the ropes, to give a quote on a multidirectional manually operated variable impact generator.

Then, if the subcontractor submits a quote of, say, $200 for the impact generator, the systems contractor adds his usual overhead markup for the purchasing department, let's say 25 percent, "justifying" a cost of $250. (The systems contractor can also add a slug of "engineering" and "program management" costs, both direct and overhead if he wants to, but for simplicity we'll assume he doesn't.) Then, because we are dealing with space-age capitalism, the profit is figured as a percentage of estimated costs. Let's be cheap and add only 10 percent, or $25 in this case, bringing the price of the hammer to $275.

A typical auditor will probably check that a document exists to show that the subcontractor actually bid $200 to supply the impact generator and that the markups are in line with those generally deemed acceptable and "reasonable."

Once this transaction is approved (or goes through automatically under BOA formula pricing), the system contractor can buy a hammer for $10 from the local hardware store, deliver it, and collect $275, pocketing a neat gross profit of $265. If the transaction is later detected, the contractor may be accused of "defective pricing" because he did not spend as much as he said he would for the hammer. He might have to give back some of the money, which wouldn't be all that important; but if news of the transaction leaks and generates a horror story, that becomes very important for it might ruin the racket. Usually the contractors just go through the wealth-sharing motions, and everybody who counts stays happy.

Wealth sharing for favored subcontractors was so attractive that cartel members who were not due for a prime contract in the rotating award system often were quite happy to take their turn as subcontractor to the winning lodge brother. It made for nice, gentlemanly bid rigging.

At the time of my visit to Tucson in May 1982, Hughes had already manufactured 20,000 of the EO Mavericks. Many of the parts on the new IIR model were identical or very similar to those on the EO; the major innovation was the "seeker head." Hughes had also built 93 "equivalent units" of missiles of the new design. (An equivalent unit was simply 262 standard hours of mixed production on the missile, because that was the should-take time to build a complete missile. This concept, useful for accounting, was a roughly accurate way of measuring manufacturing performance at given periods.)

When I checked the figures, I found that Hughes was spending 17.2 actual hours of factory labor to produce one standard hour of work on the IIR Maverick. Unfortunately, that was the relatively good news. The bad news was that when all the markups were added (except for certain costs such as those for the original design), the Air Force was paying Hughes $3,405 for one standard hour of work.

The worst news was that Hughes was turning out a terrible product. The quality experts in the Air Force Plant Representative Office (AFPRO) denied that, but during our factory tour, I saw some extraordinarily sloppy quality control. I didn't have time to verify the details during that visit, but I stored the memory away.

Next I took my group to Albuquerque to visit AFSC's Contract Management Division (CMD), the headquarters for all our AFPROs. There I met a civilian industrial engineer named Ompal "Om" Chauhan, who turned out to be a jewel in this business. Om had been born in Rajasthan and, after service in the Indian Army, had married an American, put himself through engineering college here, and become an American citizen. I was delighted with his quick intelligence and energy. I was also pleased that he had a good vantage point for looking at all twenty-five contractor plants where we had Air Force detachments. Even better, Om liked cost cutting. He wanted the big contractors to conform to a work measurement system that had been instituted, I believe, around 1972 by a CMD engineer named Pat Haugh but never employed.

Om was able to take the rough figures I'd gathered in Tucson and refine them, as shown in the chart. The "standard hours" line shows the measurement of should-take time, or standard work content as determined by Hughes engineers, which varied a little as the Maverick design changed. The "actual hours" line shows what really happened -- the actual manhours spent in production. The variance, of course, is the disparity between the should-take time and the actual time spent. And the ominous shaded area is waste caused by bad work, that is, time taken up by work the Hughes inspectors found unacceptable. Even this, Om said, had its phony aspect. A lot of work was done and redone before it ever got to the inspectors, but that wasted time wasn't counted as rework time.

Variance between standard hours and actual hours in manufacture of the "R Maverick missile by Hughes Aircraft. Source: Air Force Contract Management Division.

For people who find stories in charts, Om's chart told some remarkable tales. One has to do with the learning curve. The theorists say that improvement should be steady and rapid after the first unit is made. Say Hughes spent 3,000 labor hours on the first. According to theory, the next should be made in 80 percent of that time (for the typical 80 percent improvement curve), or 2,400 hours. The fourth unit ought to be finished in 80 percent of the time the second one took, or 1,920 hours; the eighth unit at 80 percent of the fourth, or 1,536, and so on. By the time Hughes had made 64 units, they should have been down to a manufacturing time of 790 hours per unit.

But look at the chart: Hughes was actually taking more hours on each successive unit. This was not a slow learner, it was a reverse learner. Except for Om Chauhan, the CMD people saw nothing wrong with that. They seemed to think it was somehow preordained. As for the quality control people, they shrugged their shoulders at the shocking amount of time spent on rework and scrap. It struck me that Hughes hadn't learned how to make a missile efficiently, but it had learned the great self-serving lesson: how to get away with fiscal murder.

When I brought these findings to Russ Hale, he said he was concerned and that certainly some improvement should be made, but we shouldn't appear to be picking on Hughes. He suggested we apply Om Chauhan's chart to some other, similar tactical missiles we were buying. I then discussed this with General Marsh, who listened nervously and agreed but said he'd get the information himself. He said he had good people and he didn't want me "mucking about in his plants."

By this time Jim Ririe, our political keeper, had been converted to the economy cause. Jim, Colin, and I worked out a scheme to evaluate and challenge the excessive costs of our big contractors, using Om Chauhan's yardstick to measure factory labor hours. We were going to put such things as engineering hours, rates of pay, material costs, and overhead ("costs elements" in accountants' language) to the test.


Then an interesting new problem began to develop. George Spanton, a man I'd known as a Navy auditor some years back, was now in charge of a Defense Contract Audit Agency (DCAA) group at Pratt and Whitney's plant in West Palm Beach, Florida. George had had the bad manners to challenge excessive travel and improper entertainment expenses that the company was passing on to the government, and he'd balked at the big pay raises Pratt and Whitney executives were handing out to themselves and their employees. In the course of eleven months in the previous year Pratt and Whitney had granted themselves a total pay raise of 23 percent.

The Pentagon's system for evaluating pay raises was wonderfully loony; our contract negotiators would accept any raises that didn't deviate greatly from a trend line established by past raises. So the bigger the boosts in the past, the bigger the boosts the company could get away with today. George wanted to compare Pratt and Whitney's pay scales with those in other, cost-competitive industries and with those of government employees. He proposed that the company's pay hikes split the difference between the percentages allowed government employees and the percentages Pratt and Whitney wanted.

George's injection of sanity wasn't unjust to Pratt and Whitney. The company could reward themselves just as they wished out of their ample profits. All George was concerned about was the company's habit of rewarding its people directly out of the U.S. Treasury. Spanton's proposal would deny Pratt and Whitney a $150 million raid on the Treasury over the next three years. That pinched.

When I called on the CMD in Albuquerque, I asked for Spanton's pay audits, a request that made everybody very nervous. They said Spanton's reports were meaningless, and when the produced them, I found that somebody had scrawled on the cover page, "This report was withdrawn by DCAA'" -- which was not true. DCAA had only changed some of the explanatory language, not the substantive findings. Finally, the CMD people argued that Spanton's recommendations would kill the spirit of free enterprise in West Palm Beach.

When Jim Ririe saw the Spanton report, he told us that on April 15, 1982, Verne Orr had written a letter to Russ Hale along the lines of George's report. Orr had said that the zooming pay rates were "absolutely ludicrous" and had told Hale to put a stop to the permissive Air Force practices that allowed it.

That was Orr's hot potato. Nobody had wanted to touch it or even acknowledge that it existed. But our group was delighted to find a firm policy directive from the secretary that matched Spanton's independent field audit. Orr seemed pleased that somebody was getting into the problem. He told me he wanted the Air Force to be just as firm about holding the line on executive and white-collar pay as on hourly wages. That was a good sign; that summer of 1982 for the first time I was very hopeful that we could put a few controls on the giant jackpot machine.

Seeming proof that Verne Orr was on the right side came when he addressed a luncheon meeting of the Washington Times editorial board. He praised my work highly and said that my rehabilitation was a symbol of the Reagan administration's desire for economy and efficiency. I was happy for the good words and pleased that Orr had chosen this forum to praise me. Clark Mollenhoff, who had taken a summer leave from his professorship at Washington and Lee University to report on the Pentagon for the Times, was there. The newspaper -- nicknamed the "Moonie Times" because it was owned by the Reverend Sun Yung Moon -- was trying desperately to establish journalistic respectability and had brought Clark in to help. The paper had strong right-wing connections with the administration and, according to the editors, it was the first paper Reagan read every weekday morning.

But now the Air Force buying alliance was getting ready to shaft George Spanton. His DCAA bosses decided, quite illegally, to block his access to key records he needed for his work and to transfer him to California. They wanted to frustrate him to the point that he would decide to retire. When I spoke to Russ Hale and to Willard Mitchell, his principal deputy, Mitchell warned me not to carry on a campaign to help Spanton "directly." Being a good bureaucrat, I obeyed -- and carried on the campaign indirectly.

Clark Mollenhoff, with the help of Greg Rushford, eventually wrote more than a hundred stories about the Spanton case. His stories goaded the Office of Special Counsel (OSC) into action. The OSC was the "chaplain" that was supposed to protect government employees' rights under Jimmy Carter's grotesque whistle blower protection scheme. It did get some of Spanton's bosses removed from their jobs, but the victory was temporary. The OSC presented a flawed case -- deliberately, I thought -- and was reversed on appeal. Meanwhile George, stymied in his reform efforts, retired. Both the reforms and the reformer were lost to the taxpayers.

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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

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PART 2 OF 2 (CH. 9 CONT'D.)

Things seemed to be going well for me personally, so I turned to help Om Chauhan get his work measurement scheme accepted. For ten years the engineers in CMD and the army had labored patiently to perfect a Military Standard for contractors, who would be required to measure work by that standard. These engineering time standards would give us a better handle on cost control, on tracking progress, and on pricing. But each time the engineers had come up with a blueprint for the standard, the contractor-military opposition had conjured up an objection.

I decided to put an end to this nonsense by calling a big Pentagon conference and inviting representatives from Weinberger's office, all the services, the Defense Logistics Agency (DLA), and anybody else who cared to attend. Om Chauhan and his boss, Colonel Jack Bryan, came. A coven of Air Force procurement types turned up. The DLA sent some knowledgeable people, and the defense secretary's office sent some brass. Ed Kindinger and Al Addlefinger, two able technicians representing the Army Management Engineering Training Agency, were even tougher than I in pushing for the standard.

I had announced that the conference would last until we had an agreement on the final form of military specification for work measurement. We reached an agreement in less than four hours, which enabled Chauhan and Bryan to go back to the AFSC with a Military Standard ready to be published. We expected approval and distribution within a few weeks.

Summer turned to fall, and nothing happened. There were no evident signs of trouble between my bosses and me. Orr and Hale seemed ready to let our work proceed. My promotion to GS-18, the highest grade in the old civil service merit system, came through, and the written justification was gratifyingly flowery.

But still nothing was happening on any of our improvement fronts. The generals hadn't produced the factory cost performance figures we'd requested months before. And people who had once seemed to understand what we wanted were suddenly uncomprehending. Colin Parfitt observed that the British Army once had a court-martial offense officially called "dumb insolence," -- or pretending stubbornly not to understand. I had a vision of long lines of U.S. generals, colonels, and admirals waiting to be tried on the charge. It would decimate the Pentagon.

At about this time the AFSC and DoD people who opposed the Military Standard work measurement got together, and soon Richard Stimson, of Weinberger's office, forbade publication of the Military Standard until "industry objections" were met. Clearly we had to think of another way to skin the cat.

On the Orr-Spanton initiative on pay raises, the situation was even worse. The generals were not only ignoring Secretary Orr's direct order to stop paying for huge raises for contractors (so much for military discipline) but were lobbying against it on Capitol Hill. Congressional staffers told me that General Bernie Weiss and a troop of procurement officers were drumming up congressional opposition. We reported this and other evidence of obstruction to Russ Hale, but still nothing happened.


Thomas Amlie, who had replaced Duane Packard, was a fine asset to our group. Along with four engineering degrees, including a Ph.D., he had an outstanding record as a designer of guided missiles. Tom had started his career as an assistant to William McLean, director of the Navy's China Lake lab, at that time the best weapons laboratory in the world. McLean was largely responsible for the highly successful Sidewinder air-to-air missile. When Tom succeeded McLean as director, he developed some new weapons and worked out some refinements for the Sidewinder. But -- the oft-told tale again -- Tom had a habit of telling the truth, and that was something the admirals wouldn't stand for.

Tom recalled that while McLean was developing the Sidewinder with a total of about 125 people (including secretaries), Hughes was developing the Air Force Falcon missile with about 4,000 people on the job. The only difference in results was that the Falcon failed and the Sidewinder worked.

As Tom, Colin, and I discussed our problems, we suddenly realized that the people we had to persuade didn't have a single day's manufacturing experience among them. Not one of them had ever designed anything. Hale was an Annapolis graduate who had had an Air Force commission, a job with IBM, and a congressional staff post before coming to the Pentagon. Verne Orr, ex-car dealer, was an astute politician. Frank Carlucci was a professional bureaucrat. Caspar Weinberger was a lawyer who had held some government posts. Education! We needed to educate our technologically illiterate bosses.

Not a bad idea, but I wasn't sure how we'd do it. These men were too busy and preoccupied to hold still for a tutorial. We hit on the idea of showing, in graphic form, how some old, familiar products we had been buying for years had shown dramatic price boosts that no inflation indices or product improvements could explain.

A good example was the C-5B, which was vastly more expensive than its disreputable older brother the C-5A, my nemesis. The chart shows the price differences, using the learning-curve prices negotiated for each model. The C-5A prices, originally negotiated in 1965, were renegotiated in 1970 to reflect inflation and alterations in the design. The prices shown are for the aircraft alone; the four huge engines were separate.

On the C-5A, all of the great cost overruns I had testified to had occurred or been exceeded. Even the diehard partisans of the old did-cost/will-cost estimates had to admit that we had ended up with "polluted actuals" for C-5A costs. But that great accumulation of waste and "polluted actuals" became the basis of costs for the C-5B! And further, the Pentagon added in new inflation figures that were higher than the actual rate of inflation.

But that was not the end of this series of absurdities. The big excuse for contracting for the B series after the disasters of the A model was that everything would be cheaper. The salesmen argued that Lockheed had learned its lessons with the C-5A. The new model was to be built in much the same way, in fact, after some changes, it was simpler to build. Ninety- five percent of the tooling was the same for the two planes. I was told that 55 percent of the C-5A was still in production because of spare parts orders and the $1.5 billion wing replacement program.

Thus Lockheed wouldn't have to invent the wheel all over again. They could start at the point of greatest efficiency on the learning curve. Correct? Not at all. Lockheed had to start out by spending $305,900,000 per airplane because, presumably, it didn't remember how to build them.

As Dina Rasor recounted in her book, The Pentagon Underground, the Air Force people who flew transports shuddered at the idea of buying a new-model tin balloon. But they were under heavy pressure to go along. Even some of the brass were opposed to the C-5B. Whitey Driessnack, now assistant vice-chief of the Air Force, told me he thought the proposed price was outrageous. He said that the first C-5B should be considered the eighty-second C-5A, to avoid the fat part of the learning curve. I had an idea that this horror story might be a good place to begin the education of my bosses. But to my surprise, I discovered that Verne Orr and Russ Hale were pushing for the purchase of the C-5B.

Unit prices negotiated for Lockheed's C- 5A and C-5B aircraft, not including engines. Source: Air Force Plant Representatives Office, Air Force Plant 6, Marietta, Georgia.

I tried another angle. I went back to my old favorite yardstick of dollar cost per standard hour of output. By 1982 the most "reasonable" of the big military contractors was charging $95 per standard hour. Most of the others charged between $150 and $300. Hughes, of course, was the all-time champion hog at this county fair with a feed bill of $3,405 per standard hour.

How could we illustrate the difference between reasonable costs in commercial enterprises and those in military contracting? It occurred to me to go back to a comparison I had made in 1973 and ask, what if Hughes Aircraft were making nineteen-inch television sets (which now cost about $360 dollars retail) instead of Maverick missiles? In 1973, using the rates and markups of the most expensive military electronics contractor, I had estimated that the military would have paid $8,000 for a TV set retailing for $400. By 1982 I couldn't find any companies making TV sets in the United States, which made the estimate more difficult. But going back to my 1973 calculations and inserting Hughes's known markups, I figured that the lowest estimate would be just over $100,000! Tom Amlie added a footnote to that: we knew that the $100,000 Hughes set wouldn't work very well or last very long because Hughes didn't know how to solder. In the best Pentagon tradition, I reduced this to tabular form, as shown here.


We made other estimates and guesstimates of what consumer products might cost if made by military contractors, but the lessons didn't get across. Our bosses were certainly competent at extracting money from Congress and spending it on schedule, but they weren't very good at assimilating our teachings.

Finally we hit on another teaching tool: spare parts. Scarcely a taxpayer in the country has ever gone out to buy a C-5A transport or a Maverick missile for their back yard. These complex systems of expensive hardware are beyond most people's comprehension. But some of the spare parts are very similar to items we all buy in the hardware store. If we could teach our bosses that the prices being charged for spare parts were outrageous, we might be able to explain that this only reflected the outrageous overpricing of the complex mechanisms to which they belonged.

Our small team thought we saw a way to make a telling case about spare parts, even though it wasn't a new topic. Whenever an economy-minded politician wanted to make a speech, he would dip into the spare parts barrel and come up with a simple tin widget that the Army had bought for $500. The military spenders soon discovered how to handle that line. A $500 widget? Well, we deal with hundreds of thousands of parts manufacturers, and there might have been a slip-up on this one tin widget. But give us a chance. If Congress will appropriate an adequate sum for new computers, additional auditors, and perhaps a reshuffle of administrators, we will, sooner or later, get to the bottom of this. In the end the little flurry over the tin widget would be forgotten. And no one ever got to the root causes of overpricing. The Pentagon seldom seriously questioned markups and almost never questioned whether contractors were spending money wisely or wastefully.

The spending craze in the late years of Carter and the early years of Reagan had produced so much money that the Pentagon steam shovel was having a hard time getting rid of it. The ever-willing contractors pitched in and jacked unit prices sky high -- so high and so fast, in fact, that even the Pentagon machine couldn't keep up. And among the greediest of the price-jackers was Pratt and Whitney.

This company had negotiated contracts that allowed charges higher than the pricing formulas applied at the time of purchase or even after the parts had been delivered. As usual, the formulas were so flexible that Pratt and Whitney could raise pay rates or boost charges for overhead or for inefficiency almost at will. And, as I noted, they charged more and faster than the money machine could spew it out.

This loose arrangement and the resulting price increases were brought to light at our Oklahoma City ALC, a buying division that had the great advantage of an exceptionally energetic detachment of "competition advocates" from the Small Business Administration (SBA) headed by Flank Miller. This group kept a sharp watch for hardware and services that could be furnished more cheaply by a small business than by the big contractors. Miller tried to institute competitive bidding wherever possible. The SBA had similar teams elsewhere, but none approached the effectiveness of Frank Miller's three-person operation. It was worth a squadron of auditors and a gaggle of inspectors general. The SBA operation not only saved the taxpayers a lot of money, it made the Air Force buying officers quite a bit more prudent in letting contracts.

Because of the shocking, unanticipated price increases, the Oklahoma ALC complained bitterly in writing about Pratt and Whitney. On July 12, 1982, Robert Hancock, the civilian deputy chief of buying, signed a memorandum to his bosses citing thirty-four examples of Pratt and Whitney spare parts for which quoted prices had rocketed up 300 percent in one year. Then Hancock committed an unforgivable sin: he criticized a big contractor. The memo said, "Pratt & Whitney has never had to control prices and it will be difficult for them to learn."

The Project on Military Procurement got the Hancock memo from a closet patriot. When they released it, the memo got a big play in the newspapers. Congressmen were upset; the Pentagon established review teams. It was the scandal of the week. But nobody except our group wanted to go to the root of the evil, which was the markup factors Pratt and Whitney and their suppliers used to justify higher prices.

The Fitzgerald-Parfitt-Amlie team decided on a new tactic. If we could relieve the Reagan Pentagon management from some bad-publicity pain, we might be able to make some genuine improvements and at the same time change their attitudes for the better.

I made the pitch to Russ Hale, saying that the generals were still dragging their feet on the improvement projects we'd advanced. While keeping up the pressure on them, we should shift our emphasis to the immediate problem of spare parts. Russ's face gladdened with a big smile. "Done deal!" he said.

He was relieved to be rid, for the moment, of the problem of the generals stonewalling against my access to information on the really big, embarrassing military programs. Spare parts seemed a relatively innocuous trail to let me go off on. It didn't occur to him that eventually we'd tie the overpricing of parts to the overpricing of everything.

When Colin Parfitt returned from a visit to Pratt and Whitney's main plant at East Hartford, Connecticut, in early October 1982, he reported that he'd found the managers cooperative but the Air Force Plant Representative hostile. And he confirmed that Pratt and Whitney's spare parts price markups were the same as those for complete engines.

The financial people at the plant had gathered samples of their complicated cost-accounting worksheets for Parfitt, showing how all this was done. But Colonel J. M. Syslo, the resident Air Force man, objected, saying that the papers would have to be sent to us through his chain of command. Colin thought this a little bizarre, but he decided not to make an issue of it. After all, how long could it take to forward a few papers through channels?

Thus began another strange, but typical, tale of the Pentagon's Fabian tactics. (Quintus Fabius was a Roman general who wore Hannibal's army out by opposing it with endless marches, countermarches, and skirmishes. It is rumored that he has been awarded posthumous four-star rank at the Pentagon.)

After a week or so Colin made some follow-up calls. He was told that the papers had to be mailed from Hartford to the Contract Management Division in Albuquerque, where they would undergo "staffing" and "coordination." After these arcane operations, the papers would be reviewed at AFSC headquarters at Andrews Air Force Base in Maryland. After more "review" there, they would be sent to the Pentagon.

In the meantime the Air Force military had set up a special blue-ribbon commission (what else?) to study the spare parts problem. It was headed by retired Air Force general Alton Slay, who had been commander of the AFSC and thus had monitored the price markup factoring systems he would now be reviewing. A conflict of interest? Slay was also on a retainer as consultant to United Technologies, Pratt and Whitney's parent company! Another conflict of interest? That never entered the Pentagonians' heads. Or did it? Clearly, a big preemptive strike was about to be launched. The bombers were on the runways, armed and ready. The generals were climbing into the cockpits.

To forestall the Slay commission, I personally got into the hunt for the Pratt and Whitney papers. After about three weeks, we got the papers pried loose from Albuquerque and sent to Andrews AFB. There, we were told, they would have to be further "staffed" and "coordinated," then sent to Air Force headquarters for more staffing and coordination before going to Colin.

When I tried to take the matter up with Russ Hale, he was suddenly very busy. Mitchell, his deputy, promised to look into the matter, but nothing happened. So I got General Bernie Weiss of the AFSC on the phone. Where were the papers? Weiss was "personally reviewing the package." What on earth was there to review? They were simply Pratt and Whitney's accounting records, and no amount of staffing, coordination, or review would change them. Weiss said he would expedite the matter.

Again, nothing happened. The climactic scene occurs at five o'clock, the afternoon before Thanksgiving 1982. After trying for an hour to extract the papers from the AFSC, I go to Russ Hale's office. He has left for the weekend, but Peggy Johnson, his secretary, is still there. I express my irritation, bafflement, and misfortune. Peggy, sympathetic and quick thinking, says she will call the AFSC commander's office and say that Assistant Secretary Hale's office is sending a car to pick up the report. She explains that anybody who is anybody has probably already left the AFSC office.

Peggy is extremely good on the phone, pulling rank on the minor bureaucrat at the other end of the line and telling him "the Secretary" must have the report before Monday. The bureaucrat finally disgorges the fact that General Weiss has taken the papers home with him, presumably to staff and coordinate in front of his own fireplace.

Very businesslike and brisk, Peggy asks for the general's home address. We'll send a car around to pick up the papers, she says. The bureaucrat stalls, but he is weakening. Something in his brain is sending a faint electrical signal that the Secretary's office might complain if he doesn't cooperate. He chokes out General Bernie Weiss's address.

Peggy calls the car pool and dispatches a car. And about an hour later, the papers arrive.

Thanks to Peggy Johnson, we were able to complete the Parfitt Report, which showed beyond doubt that the amount of fat in Pratt and Whitney spare parts was exactly proportional to the fat in Pratt and Whitney engines. Colin also made good recommendations for correction.

What was the Air Force management's reaction to the report? They did not howl and denounce us, they didn't take steps to abolish Colin's job, they didn't put the security boys on us to get proof that we were Reds (so far as we know). They simply behaved as if the report didn't exist.

We made dozens of copies of the Parfitt report and distributed them as widely as possible in the Pentagon. No one ever disputed Parfitt's findings; everybody who was willing to talk about it agreed that Colin was correct. What the Parfitt Report delineated so plainly had, of course, been a commonplace to me and my associates for a long time. But now our bosses also realized that this gross overpricing, not just on stray widgets but across the board, was still a pretty well-kept secret. It wouldn't do to draw attention to it.

I pressed Russ Hale's principal deputy, Willard Mitchell, for a discussion. Even if he wouldn't talk about the substance, he ought to be willing to comment on the recommendations for savings. At last, in a somewhat confused way, he said, "We're adopting the Slay recommendations." He was not sure what those were, but he promised to get me a copy of the Slay report.

When I saw the list of the Slay commission members, I realized that the general was not the only one burdened by a conflict of interest. As employees of the big contractors who flourished on overpricing practices, the commission members would be unlikely to cut their own throats in public by producing a realistic report. The general had solved that problem by not mentioning the affiliations that tainted the commissioners.

Slay solved the bigger problem -- the shortfall between the money the Pentagon said it required and the appropriated sum -- by recommending more money for the Air Force budget, beginning with an additional $4 billion dollars a year for spare parts.

He also recommended new procedures at the AFLC. That wasn't the real problem, but it gave the AFLC bureaucracy a wonderful excuse to revive the old, discredited Advanced Logistics System (ALS) under a new name. As I noted earlier, the ALS was a parent scheme for Project Max, a plan that could make our ALC maintenance operations as bad as those of the big contractors. Year after year Colin and I had to keep shooting down the descendants of Project Max.

On New Year's Eve 1982, Colonel Ensign returned Russ Hale's copy of the Parfitt Report with the penned notation, "No longer required by us. Dick Ensign."


Pratt and Whitney had not, however, been allowed to fade into the shadows. Clark Mollenhoff and Greg Rushford's investigations had been followed up by columnist Jack Anderson. And now, in early 1983, Pratt and Whitney was going to be featured on ABC's "20/20" show.

The ABC producer was my old friend and neighbor Charlie Thompson, a tough, experienced reporter. As he began to delve into the subject, he found case after case of chiseling the government. One of the most sensitive incidents he turned up was Pratt and Whitney's gift of $67,500 to an Oklahoma City art club. A little research revealed that one of the club's directors was Mrs. Jay Edwards, the wife of the commanding general of the Oklahoma City ALC. This officer had solicited Pratt and Whitney for the gift, and the company had charged the expenditure to an account for government reimbursement.

Another discovery of Thompson's was further confirmation, by an Air Force review team, of the memo Robert Hancock had written from Oklahoma City in July 1982. Pratt and Whitney had indeed enjoyed profits on the spare parts Hancock had listed far beyond what any pricing system -- even the lenient did-cost/will-cost -- would allow. As soon as Charlie started asking questions about the Hancock memo, the Air Force hastily set up a "senior review group" to arbitrarily overrule the Hancock findings.

That didn't stop Charlie Thompson. He compiled his own report. He talked to the working-level people in the Oklahoma City ALC and verified Hancock's figures. We helped him all we could. But we touched an even more sensitive nerve when he found that parts manufactured by the ALC were far cheaper than the same parts bought from Pratt and Whitney. It violated the firmest notions of both presidents Carter and Reagan that lazy, overpaid, incompetent government workers could manufacture quality products at a fraction of the cost charged by big private corporations. But it was true.

In the course of all this, Charlie had to talk to Air Force flacks a good deal and listen to a lot of lying. He took to tape recording some of the talks. Then, in a later session, he would produce the facts that showed up the lies. This made the officer flacks a little crazy, and one of them yelled at him, "Gentlemen don't tape each other." No, Charlie answered, gentlemen don't tape each other because real gentlemen don't lie.


The "20/20" program on March 10, 1983, was a brilliant and devastating expose, the best of its kind to date. Charlie's principal correspondent on camera dramatized the story with interviews, commentary, and examples. He even used the tried-and-true demonstration of holding up a series of rather ordinary-looking spare parts with quite extraordinary price tags on them. Some of the prices would have been right for an expensive automobile.

General Jay Edwards, when interviewed about Pratt and Whitney's munificent interest in his wife's art club, could only mumble that he didn't know the government was paying for it. George Spanton, on camera, gave an admirably restrained and cool-headed account of his difficulties with Pratt and Whitney management. (His bosses rewarded him the next day by ordering him transferred a second time. Both transfers were blocked by the public controversy they provoked.)

That night the television in the president's living room was tuned to "20/20" and Reagan was upset at what he saw and heard. He later told Senator Charles Grassley (as reported in Rasor's The Pentagon Underground) that the next morning he telephoned Weinberger to ask what was going on in the spare parts business.

Weinberger summoned our friendly political keeper, Jim Ririe, and asked him to explain about spare parts. Ririe gave him the straight truth: the parts were highly overpriced, and a great many other military purchases were correspondingly overpriced.

The world has not learned what Weinberger reported back to Reagan, but Grassley told both Dina and me that the president "was satisfied with their response that ABC had sensationalized the situation to make it appear worse than it was."

That was certainly the concerted response of the Air Force and the Pratt and Whitney flacks, who immediately disclaimed everything in the "20/20" inquiry -- except for one small admission: they agreed that a certain rivet had been overpriced. We did, however, get the reassuring news from Orr's assistants that this barrage had been sent up without the knowledge or consent of Verne Orr.

We decided to press ahead with the spare parts educational program and to find some villains other than Pratt and Whitney. After all, they only charged $150 to $300 for a standard hour of work, sweatshop rates in comparison to what Hughes got away with. Our problem now was that we weren't getting very much officially transmitted information from the Air Force military. So we hit on a shortcut.

After our earlier revelations about Hughes Aircraft, "Whitey" Driessnack had joined us in persuading Orr to "declare war on high costs." One of the practical steps was setting up an office with a hotline to take reports of egregious waste. We'd heard nothing from that office, so I asked Tom to find out what calls they'd had. (Colin Parfitt was seriously ill, and Tom Amlie had taken over his duties.)

He came back with two prize horror stories, both involving Boeing Aircraft Company's work on the Airborne Warning and Control System (AWACS) airplane. The first one was about a spacer, a flat, metal washer with a big hole, each of which cost the government $693.44. The second story was about a plastic stool cap. The navigator on an AWACS plane has a small stool, much like a kitchen stool. To keep it from scarring the deck, the stool has a plastic cap, actually more of a plug, in the end of each hollow leg. When these caps wore out, they were replaced as spare parts. For the new order Boeing was asking $1,118.26 apiece.

Tom took this information to Verne Orr, who said he considered these prices outrageous and thought the taxpayers ought to know about them. It came to pass that the taxpayers did: NBC news told the story a few days later. The evening news program ordered an identical spacer made in a machine shop (which is an expensive way to duplicate a normally mass-produced item) for a cost of $5.00. When the program aired, it featured Verne Orr denouncing the excessive prices, and it showed the two spare parts. The stool cap became a sort of media symbol for Pentagon arrogance.

The Air Force military contracting people swallowed hard, then sent a young captain around to explain to us about the stool cap. (Colin, Tom, and I were still being treated with a modicum of deference.) The Air Force pricers, the young man said, hadn't "specifically" justified the $1,118.26 current Boeing price tag but had done a thorough "cost analysis" a couple of years before, when the last stool cap was purchased from Boeing. He gave us the cost-justification figures shown in the table. The young captain wasn't really joking; he was deadly serious. He actually believed that if Boeing said they had spent 49.56 hours manufacturing that simple piece of nylon, well, the government should pay them what they asked.

But how about the "inspection labor hours"? Did the captain honestly believe that an inspector could spend a whole work day -- 8.01 hours -- staring at one of these stool caps?

In the loyal spirit of the Light Brigade (theirs not to reason why), he said, "Well, the figures were all audited."

And how about the big jump in price from the older figure of $916.55 to the present $1,118.26?

There had been a lot of inflation in the past few years, the poor lad explained.

The plastic stool cap for the Boeing AWACS airplane.

The Washington Post, while not accepting the sophistry represented in the chart, nevertheless ran a story that was "balanced" enough to comfort Boeing, whose flacks quoted it ever after as a rebuttal to the horror stories.


I don't know how permanently beneficial these exposes were, but I did see a healthy effect, limited and short-term though it was. Taxpayers put the heat on their elected representatives and they, in turn, tried to brake the administration. Without the spare parts scandal, the Reagan spenders probably would have done even more damage to the country.

What the scandal exposure didn't do was change the Pentagon buyers' basic philosophy. They stuck doggedly to their "actual costs are good costs" philosophy, however fat the "actuals" might be. They never learned that any piece of goods sold to the government ought to be priced at what it should cost to make or acquire economically and efficiently, plus a moderate, decent profit. Only a handful of congressmen and a few reporters ever understood that principle.


Mid-1983 was a critical time in the Reagan administration, a testing point for its philosophy of massive spending. Were the neo-Keynesians right in their belief that a great infusion of money would correct a downward trend in the economy?

The results seemed to support their viewpoint. Of course there were horror stories, and of course the waste was enormous, but weren't those acceptable corollaries to the stimulation? The flood of new government contracts did put an end to the statistical symptoms of the 1982 recession. On January 22, 1983, a Washington Post headline claimed, "Inflation Falls to 3.9 Percent for '82; Orders Surge for Durable Goods." The heart of the story was:

Commerce said orders for durable goods rose $8.5 billion, or 12 percent, to a level of $79.1 billion. Orders for defense goods, including ships and aircraft parts, rose $6.9 billion, up a huge 135 percent since November.

Outside the defense area, orders rose a more modest $1.6 billion, or 2.4 percent. However, analysts noted the gains were spread across a wide range of industries, probably indicating a recovery is imminent.

Note that "defense goods" accounted directly for 81 percent of the increase in orders for durable goods. This, in turn, provided money for the contractors to meet payrolls and buy materials and so influenced the "modest" upturn in the private sector.

But the economy was winning a small battle while losing the war. The looming problem was that the federal government was running up a net deficit of $207.7 billion for the year -- nearly three times the deficit Jimmy Carter had accepted in his vain effort to buy the 1980 election. The rather artificial good news in the Washington Post story disguised some very bad news for the decades to come.

Sitting before his TV set and watching the "20/20" program, Ronald Reagan could not grasp the connection between Pentagonal squandering and all the dire things about the national debt he had told us so often. But some of the press, some of the public, and some members of Congress could.

Those who were awake in America were becoming even more concerned that the deluges of money were producing weapons systems that didn't work. Throwing dollars at technical problems solved nothing. It was an interesting example of an uncomprehended analogy. The Reagan team had announced that this same flaw in logic -- trying to solve a problem by mere funding -- had resulted in the failure of the War on Poverty. But here was a parallel they didn't wish to see. The Project on Military Procurement and its friends produced ample evidence about weapons that did not work. Many of these stories are summarized in the Fund for Constitutional Government's 1983 book, More Bucks, Less Bang. Most of this book was an anthology of overpriced weapons that didn't work as advertised. Some of them appeared to be more dangerous to the people who would operate them than to potential enemies. The book was well received among our friends on Capitol Hill. Several of its recommendations became congressional proposals for reform.

Congress went home for the 1983 summer recess in an uncertain, surly mood. Members were pleased with the big economic rush provided by the Pentagon's intravenous injection, but they were also embarrassed by the publicized signs of foolish prodigality. The home folks had learned about spare parts. They had also learned about generals who arranged for the taxpayers to subsidize neighborhood art clubs, and who knows what else? If "defense" money could be converted to such purposes, what were the limits of such conversions? Bribes? Robert Riggs's whores? Or even more sordid and dangerous horrors? Some congressmen were worried about the Pentagon excesses. Others thought the excesses were okay, business as usual, but were worried about the embarrassments brought on by the media.

Toward the end of the recess the Pentagon was rescued by an unlikely angel: the Evil Empire itself. On September 1, 1983, a Soviet fighter plane shot down Korean Airlines' Flight 007 after it had intruded a long way into militarily sensitive Soviet airspace.

By strange coincidence, Tom Amlie and I, just the day before, had been discussing how the military spending coalition needed some international atrocity to revive their failing fortunes. We'd talked about the Germans' torpedoing of the British liner Lusitania in 1915, which had changed Americans' attitudes about entering World War I. As soon as we heard about the Flight 007 disaster, Tom and I looked at each other and said in unison, "Lusitania!"

Tom was incredulous that such a thing could happen by accident. He had been familiar with civil and military aviation, particularly the electronic aspects, for most of his life, and he had served as a top technical expert in the Federal Aviation Administration. All this experience told him that if a scheduled flight had strayed so far from its path, all manner of alarms and warnings would have alerted the flight crew, the American monitoring agencies, and, by hotline, the Soviet government. He showed me navigation charts of the area with heavy black lines and a dire notice:

"WARNING: AIRCRAFT INTRUDING INTO THIS AREA SUBJECT TO BEING FIRED UPON WITHOUT WARNING." Highly sensitive Soviet military installations were located in the forbidden area.

When Tom started asking questions, his first source told him that Flight 007 was on an intelligence mission and had been fitted out as a "spy plane" at Andrews AFB a couple of weeks before its fatal flight. Not at all convincing, Tom thought. There would be no reason to bring the plane to Andrews to be fitted out for an NSA monitoring or intrusion mission.

Tom passed the story on to Jim Ririe, who took it to his "rabbi," his sponsor at the White House, Fred Fischer.

Jim was taken to see Judge William Clark, the president's national security adviser. Clark's reaction to the story was firm and immediate: "That's Soviet disinformation." At that time the administration was professing to know nothing whatever about the cause of the tragedy.

Tom, still puzzled, wondered why the government hadn't immediately tried to involve the skilled investigators from the National Transportation Safety Board (NTSB) to the scene of the disaster. At the FAA Tom had developed great respect for their analytic and investigative skills. Ordinarily, Tom said, a tragedy involving an American-made aircraft, carrying U.S. citizens on a flight originating in the United States and for which we searched in international waters, would have attracted intense attention from both FAA regulators and the NTSB. Instead, these agencies seemed incurious and detached.

Whatever investigations of the incident the government carried on in secret, no great effort was made publicly to identify and eliminate the causes of the "navigation error," a chilling air safety problem. Reagan and his spokesmen properly denounced the Soviet Union for criminal recklessness and, on September 5, four days after the shootdown, the Los Angeles Times reported that Reagan told congressional leaders he had "definite proof that they intentionally shot down that unarmed civilian airplane." In an address to the nation the next day, he was quoted as saying, "There is no way a pilot could mistake this for anything other than a civilian airliner," and again referred to "incontrovertible evidence." Amid the hysteria, no one demanded to see that evidence.

If Reagan's remarks were as reported, he was lying to the leaders of Congress. After more than four years of evasions, the State Department finally agreed to a request by Chairman Lee Hamilton of the House Intelligence Committee to declassify information on the president's deception, which Hamilton had known about for more than a year. On January 12, 1988, Hamilton released the long-concealed, damning passages from a U.S. intelligence report on Flight on 007: "We had concluded by the second day that the Soviets thought they were pursuing a US reconnaissance plane through most, if not all, of the overflight."

The administration's most cynical internal exploitation of the 007 disaster, however, was National Security Decision Directive (NSDD) 102, "US Response to Soviet Destruction of KAL Airliner." The unclassified version of this document (see Appendix C), does not say anything about measures taken to investigate the tragedy or to prevent future ones. It simply crows over the propaganda victory and exhorts its select readers to exploit the incident further.

At this writing we don't know whether the KAL 007 was a U.S. government operation before the atrocity of its downing, but it surely was afterward. It was a secret propaganda operation of Reagan and his National Security Council. By secret edict the president mobilized the most powerful executive agencies to propagandize the taxpayers with their own money. And it worked like a charm. The shootdown was the magic potion needed to cure the dyspepsia of Congress and the country. The honorable members trooped back to Capitol Hill asking, "How much can we vote for the Pentagon?" The answer came back: "A lot more than you were ready to." And Congress proceeded to vote a huge increase in the already bloated military budget.

Logic, logic! Why did no congressman press for more information than they had from the media and from Reagan's offhand remarks? Why did nobody see that there wasn't the slightest connection between protecting civilian airliners and giving the Pentagon vast new sums?

The whole affair was a setback for our truth-in-spending movement. After my civil service restoration, our political bosses, at least, had treated us gingerly. With the 007 victory, however, the opposition grew bolder. Om Chauhan was harassed by his bosses and denounced as "a Fitzgerald man." Others who had cooperated with us -- George Spanton among them, even though he was on his way out of government -- got the same treatment.


Several inquiries were made into Spanton's charges about Pratt and Whitney and overspending generally, including a federal grand jury investigation. The Pentagon was essentially offering one defense: sloppiness. It dismissed the charges of wrongdoing by saying that government overseers had broad discretion in what they allowed Pratt and Whitney to do. The overseers' acquiescence or inattention wasn't illegal; it was just part of the way things were done.

A tug of war developed between the South Florida U.S. attorney and the FBI, according to Spanton, who was working closely with the FBI. The U.S. attorney didn't want to prosecute because of "acquiescence" by government officials in the wrongdoing George had charged. No matter, the FBI argued, an inside job doesn't make ripoffs legal. Certain Pratt and Whitney officials and Air Force officers appeared vulnerable.

The Air Force rushed its best military minds into the breach. The USAF inspector general appointed Brigadier General Raymond C. Preston, Jr., to investigate. General Preston and his fellow officers selected the Air Force Plant Representative in the West Palm Beach plant, Colonel John E. Roberts, to be the chief witness. Here is his astonishing sworn testimony given to General Preston on September 28, 1983, and recorded in the files of the inspector general's report. The syntax is the colonel's own:

I don't want to do anything that would embarrass the Air Force, and don't take that as that somebody's going to cover something up to keep from embarrassing the Air Force, but I think we have an obligation today to the American public to, not to embarrass the Department of Defense because that has a major impact on the budget that we get, some of these things.

Translated into English, this could become a classic Pentagon statement of purpose: "the George Spantons of this world should not embarrass the Defense Department because it is the Great Slush Pump in the Sky from which all blessings flow." That would excuse breaking the law.

George Spanton said he'd once had a conversation with Roberts, and the good colonel had advised him to stop trying to cut out waste. "It's the system, George," he said. "You can't change it."
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

Postby admin » Sat Nov 02, 2013 1:41 am

10. Adventures of a Born-again Muckraker

PROVING COLONEL ROBERTS WRONG was a never-ending task. Our effort to defend the interests of the taxpayers and the country seemed to be too abstract to win official support. The industry-military conspiracy, on the other hand, knew exactly what it was after and what arguments to use in rationalizing it. I got another view of that defensive reasoning in the fall of 1982 when Richard Stimson of the defense secretary's office referred me to Gordon Urquart, a Boeing executive, for the official word.

Urquart was high contractor brass, and if anybody had the Writ, he did. He was chairman of the Manufacturing Executive Committee of the Council of Defense and Space Industry Associations (CODSIA). When I talked with him, he sounded a little like a Bourbon courtier defending the divine right of kings. He said his powerful firm and association would continue to battle the idea of should-cost standards for estimating contract costs and uphold "actuals" (past "actual" costs). The whole system, he said, "is primarily oriented to actual costs." Precisely. And that's where the worst problem lay.

Verne Orr and Russ Hale renewed their commitment to support our attack on this "actual costs are good costs" line; in fact, Hale went on record in the November 13, 1983, issue of the New York Times to call the actual-costs argument "crazy." He seemed firmly on the side of "the Attic Fanatics," as he called us, because of the location of our Pentagon offices and our cost-cutting zeal.

One of the important contributions to "actual" costs, of course, was labor cost. Colin Parfitt reported that in 1970 labor rates in the aerospace industry were 24 percent above the Bureau of Labor Statistics' "All Manufacturing" rates, and by 1981 the gap had widened to 38 percent. Another comparison showed aerospace rates 22 percent higher in 1970 than those for all "durable goods workers," with the gap increased to 39 percent by 1981.

That was largely for blue-collar pay. Raises for executives and middle management people were proportionately higher. The interesting secret was that engineers on the payroll often outnumbered blue-collar workers -- in one big plant 50 percent of those employed were engineers; only 20 percent were blue collar. The companies were warehousing their engineering talent, holding on to technical people even when there was no work for them.

Thus, Parfitt found, executive salaries, were, on average, 130 percent above the durable goods industry average. (Except at Pratt and Whitney, which kept its figures to themselves.) That added up to a lot of overpaid people and an enormous vested interest.

One might expect the established government "audit community" to keep a sharp eye on all personnel costs, but that didn't seem to happen at the General Accounting Office or the Defense Contract Audit Agency (DCAA). The latter, instead of standing firmly behind their most courageous man, George Spanton, shrugged off responsibility for anything except blue-collar wage rates. It was beginning to be clear that feeble audit control by the government was one of the great flaws that allowed the whole scandalous system to flourish.

During my visit to the Hughes plant in Tucson, I had observed a peculiar practice among supervisors. In the "process" areas, where different kinds of parts were commingled, supervisors would assign employee time charges to various job orders on a more or less arbitrary basis. When I brought this to the attention of DCAA officials, they agreed that it was illogical but dismissed it as having a minor effect on overall costs. At our urging, however, the inspector general's office requested that the DCAA investigate. We heard nothing for more than a year.

In late 1983 Senator William Roth, chairman of the powerful Governmental Affairs Committee, was giving Pentagon procurement hell. What particularly incensed him was the famous antenna hexagon wrench, which was just a plain old allen wrench with an "'aerospace design" handle. As it turned out the only use for the special handle was as a place for the contractor's part number so that the Air Force wouldn't have to look it up before reordering more wrenches at the bargain price of $9,609 apiece. The company that actually made the wrenches charged twelve cents each. Westinghouse Electric took them on delivery and sold them to General Dynamics for $5,205 apiece. In short, the Air Force got one wrench for the price of 80,075 of them. And that was just the beginning of Roth's horror stories.

All of this pointed a stern finger at the DoD audit agencies. Roth's chief source was his investigator Chuck Woehrle, an ex-Pentagon auditor who shared our frustrations about the DCAA. On January 30, 1984, the Roth committee announced that it would hold hearings, beginning March 1, to discover just how effective or ineffective the audit agencies were.

George Spanton was among the witnesses to be called. Another one was A. Ernest Fitzgerald. From past experience, I should have caught a whiff of trouble on the wind. Russ Hale, however, seemed delighted at the news. Irritated at the stubborn noncooperation of the DCAA, he had put a bitter complaint on record. Hale made sure that I was being requested to appear in my official capacity, and he and Verne Orr assigned a team of four to help prepare the testimony.

Just about this time I learned -- somewhat after the fact -- that the DCAA had reported on the Hughes Aircraft labor-charging practices and, as usual, had found nothing amiss: "The reported internal control weaknesses were not found to exist."

We asked for a look at the work papers of this review, and when no one seemed able to pry them loose, Chuck Woehrle and Major Wayne Christein visited Hughes and came back with their own report. It showed that the DCAA had questioned only thirteen employees, but those thirteen had told the DCAA team about all sorts of negligence. Many workers simply estimated their work time, some signed time cards in advance, others had not worked on projects to which their labor hours were charged, and so on. This and more was in the work papers, but the official report gave Hughes a clean bill of health. This raised severe questions about the integrity of the audit agency.

Even though the defense secretary's office and the DCAA refused to provide data we needed, our team went ahead and prepared my testimony with the facts we had. After Hale had reviewed it, we sent it on to the Air Force security review, whose real function is to delete anything that might embarrass the Air Force procurement faction and their big contractors. The security review does have a side benefit for the bureaucrat; with its okay, he or she has official backing for statements pertaining to matters within his or her jurisdiction.

At the end of February, the security review officer, Lieutenant Colonel Hugh Burns, wrote a memorandum, not to me but to my legislative liaison keeper, Lieutenant Colonel Bill Thompson. "Mr. Fitzgerald will testify as a private citizen," he said. I was ordered to lead off by saying, "The views expressed in this statement are my own and do not reflect the official policy or position of the U.S. Air Force or the Department of Defense."

A rather dramatic turnabout. As I told Verne Orr, the testimony had been prepared by our whole office with the help of Senator Roth's investigator. We'd be willing to correct any factual misstatement or amend anything that conflicted with "official policy or position." For the first time since I'd known him, Orr began to crawfish. He tried to avoid the issue by saying it would be easier on everybody if I agreed.

I argued that our carefully assembled testimony would probably be denigrated by opponents as the isolated views of a lone fanatic. That point seemed to be effective, and Orr directed Colonel Burns to send a memo to concerned parties saying that my testimony was "to be processed as an official USAF witness statement." He asked for "concurrence- comment" by one o'clock on February 29, some twenty-four hours later.

One o'clock came and went, and nothing happened. After making several fruitless inquiries at the Pentagon, I went to Capitol Hill to see Chuck Woehrle and learned from him that something very fishy was going on. A group of Air Force officers had descended to lobby his nominal boss, Linc Hoewing, of the Governmental Affairs Committee staff, and Pentagon officials had been on the phone with Senator Roth that morning.

I then called Delbert "Chip" Terrill, an OSC investigator on the Spanton case, to see if he had any news. He had nothing firm but, he said the rumors on Capitol Hill were that Pentagon officials had worked up a plot to frame me. They would force me to testify without the protection of being an official witness. Then, if I produced cost and performance information that was arguably "proprietary" to the contractors, I would be set up for possible criminal prosecution or a civil damage suit. It was a neat and vicious trap to get rid of a whistle blower.

I went back to my office. About seven that evening, I received a memo from Orr's military assistants saying that my testimony could not be cleared, for reasons that were not specified. However, Secretary Orr warmly recommended that I testify in my "private capacity," and this had been approved by Linc Hoewing. It was obvious that the fix was in.

The next morning at eight o'clock, I was waiting in Verne Orr's outer office when he came to work. I told him that I had sent a letter to Senator Roth explaining my likely nonappearance. But, I added, in the next two hours we could still make factual changes in my testimony. Orr, looking very old and harassed, sent me to Dick Harshman, who was taking over as acting assistant secretary because Russ Hale had resigned. Harshman had before him a list of objections compiled by General Bernie Weiss's weenies, but they were so flimsy that he didn't try to defend them. "It's the OCAA thing," Harshman said. "That's the problem."

At the hearing that day, the senators were appropriately outraged that I was not present. Senator Roth told Joe Sherick, the inspector general, who was then testifying, to go back to the Pentagon and "clear this situation up" through "the highest channels."

I don't know whether the Capitol Hill rumors about criminal or civil prosecution had been cleverly planted by the Air Force opposition to head off my testimony, but their strategy had failed to deal with George Spanton and W. W. Murphy, the two DCAA auditors, whose testimony about the operations and management of the DCAA was devastating. Chairman Roth scheduled another hearing for March 7, and it looked as if something might come of all this.

I had to survive one more sneak attack. First Verne Orr put out the story that he'd encouraged me to testify even before the committee's request but that I had refused: "Mr. Fitzgerald's decision not to appear before the committee ... was his own decision." A little later Orr changed his story for Fortune magazine, saying I'd never been asked to testify as a private citizen. A year and a half later, confronted with the lie while testifying before Representative Dingell's committee, he retracted and apologized graciously. I accepted the apology. I liked the old guy, despite everything.

At the immediate time he was hardly as straightforward. On March 1, 1984, he sent a deceptive letter to Roth and succeeded in conning him into dropping the whole DCAA inquiry in favor of hearing "the official views of the Department on this issue of contractor labor rates and labor distribution." In my place as witness, Orr would send none other than General Bernie Weiss.

Bernie's March 7 testimony was harmless, except to anybody who wanted to stay awake. It completely avoided the original purpose of the Roth inquiry.

By this time the congressmen had lost interest and the whole investigation died away. Joe Sherick did produce his own counterfeit report of what had happened, saying that my prepared testimony represented no more than my "personal view" and that I'd tried to make the Air Force let me "present it as the official position of the Department." He even misstated my letter to Senator Roth to try to bolster his foregone conclusion. He cleverly avoided mentioning the issue of criticizing the DCAA for, among other things, covering up their auditors' findings, which, as Harshman had noted, was the real sticking point.


Late one Saturday night in early 1983, I had received a phone call. The Midwestern voice on the other end of the line said, "Hi. My name's Chuck Grassley, and I'm a senator from Iowa. Are you the Fitzgerald who wrote The High Priests of Waste?"

Uh-oh, I thought. This very conservative type is going to hassle me for that old heresy. It must have taken the news eleven years to get to Iowa.

"Is all the stuff you wrote in that book true?" I said that it was. "Are the same kinds of things going on in the Pentagon now?" I assured him that the Pentagon was getting even more money to do the same kinds of things. "Well," Grassley said, "I'd like for you to come in and talk to me about this."

Soon after, I met with Grassley and his two very astute young assistants, Kris Kolesnik and Lisa Hovelson. Grassley quickly grasped our sometimes-arcane cost-cutting proposals and it wasn't long before all of them became enthusiastic supporters of the Attic Fanatics movement.

Franklin C. "Chuck" Spinney, a Pentagon colleague of ours, had made a telling study showing that the Pentagon's concealed spending plans far exceeded even the supergenerous funds it was getting from Congress. When Grassley requested a copy of the study, Spinney's superiors, true to form, refused. Grassley didn't hesitate; he went straight to the Pentagon and marched into Weinberger's office to demand that Spinney and his papers be produced. They were. (He did the same thing at the White House to get a fair hearing for George Spanton, although in this case Reagan listened and did nothing.)

"What are they trying to cover up?" Grassley asked when he heard about the fiasco of Senator Roth's hearings. Amlie, Parfitt, and I told him. The senator and his staff quickly got into the details of the horrendous overpricing of major weapons as illustrated by the examples of their overpriced parts and by our work measurement initiative. He kept pressing for more and more comparisons between actual hours worked in defense industry compared to should-take hours for that work. Like everyone else who perceived the drastic discrepancy, he was deeply concerned.

"Mr. President," he once said to Reagan, "you've done the right thing in bringing the welfare queens under control. However, you've got to realize that there are welfare queens in the Pentagon, too. They're the big contractors."

Picking up the ball that Roth had dropped, Grassley decided to schedule hearings in late June 1984 before his own Administrative Practices Subcommittee of the Senate Judiciary Committee. He invited Ompal Chauhan and me, among others, to testify.

Was I going to be the victim of mixed signals once again? On the one hand, I remembered my treatment by Verne Orr and the Air Force in the Roth fiasco, but on the other hand, Orr had come forward again and made bold public statements damning too-high costs.

In putting together materials for the Grassley hearings, I based practically everything on official documents, nearly all from the executive branch. I even made an effort to include the views of our most hostile critics.

One good example came from an angry Air Force major named Ketcham. Tom Amlie, in a visit to the Hughes Aircraft California Division, which was working on the Advance Medium Range Air-to-Air Missile (AMRAAM), had uncovered enormous hidden costs in the program. Ketcham was the commander of the Air Force watchdog unit there, and his embarrassment was acute. His January 27, 1984, memorandum to us read, in part:

You have allowed yourselves to become little more than born-again 19th century muck-rakers, which is a disservice to the Air Force and the nation. We need to re-arm America. We need to spend our defense dollars prudently. We need whistle blowers and watch dogs to keep internal vigil and help make needed changes from within. We don't need internal detractors to add more fuel to the pacifist anti-defense movement by going external with all their information (emphasis added).

Knowing something about the history of "muckraking" (Major Ketcham obviously didn't -- he even failed to get the century right), I was pleased to be counted with Lincoln Steffens, Samuel Hopkins Adams, and Charles Evans Hughes.

I also used my hearing statement to carry the message that not everybody in the Air Force was a scoundrel ready to pay outrageous prices for junk hardware. For example Colonel Jack Bryan, director of manufacturing operations at the System Command's Contract Management Department, wrote his boss on January 27, 1983, that he wanted to furnish me some significant cost information I had requested. "Suggest you do nothing," replied his boss, Colonel Engelbeck.

I even included one internal Systems Command memorandum that described a data analysis we had pushed through as providing "instant visibility into program costs and schedule." The memo added, "We will have some opposition from the contractors if we use this format." Yes, there still were some good guys around.

Balanced and impersonal as I tried to make it, the statement still didn't pass. Verne Orr, Undersecretary Edward Aldridge, and their flacks denounced it as "not an expression of official Air Force policy" even before they saw it. A certain Major Whittaker later tried to explain to the Federal Times why the Air Force refused to clear my prepared testimony. No, there weren't any specific violations of policy, he said. Administration policy, Whittaker said, was "to view things a certain way." Here goes, I thought. The Roth hearing farce all over again.

Then one midday I heard a great commotion in my outer office and my secretary, Bette Dudka, shouting, "Oh, my God!" My door opened, and before I could turn around, flashbulbs began to pop. When my eyes cleared, I saw Senator Charles Grassley surrounded by photographers and reporters who had pushed past the bewildered Pentagon door guards. Yapping at the heels of this entourage were a lot of Air Force officers, trying to tell Grassley that he couldn't do that.

Very politely and formally, Senator Grassley served me with a subpoena to appear before his committee with my prepared statement and back-up documents. When my bosses and the Air Force general counsel saw copies of the subpoena, they caved in at once. The moral was clear: Congress could overcome executive branch cover-ups when it wanted to.

Senator Grassley was in a militant mood. He and Senator Howell Heflin, the ranking Democrat on the committee, put all my documentation into the record. Even better, they gave me plenty of time to explain how "bad management has shot down more airplanes, sunk more ships, and immobilized more soldiers than all our enemies in history put together."

I had been saying such things for sixteen years, and nobody was surprised to hear it again. But Om Chauhan's was a new voice, and his presentation opened a lot of eyes. He stressed that many people in the Air Force acquisition process were neither crooked nor incompetent, and he made a plea for support for the honest, dedicated, patriotic ones.

Senator Grassley and his staff gave that support. For the first time in my experience, I encountered a staunchly conservative Republican willing to attack military acquisition waste with vigor and skill. Our previous supporters had largely been liberals. It seemed paradoxical that the Republicans, who profess to believe in free enterprise and competition, could condone a governmental process so clearly full of favoritism, inefficiency, corruption, and monopolistic practices -- a process that was driving us ever deeper into debt.

In this case, though, concern for the nation's welfare cut across party lines; Kris Kolesnik was able to put together an unusual coalition in support of Grassley's cause. In the House it ranged from the extremely liberal California Democrat Mel Levine to Republican Denny Smith of Oregon, an ex-Air Force pilot who was especially concerned about the "less bang" aspects of Reagan's spending binge. What brought them together was a mixture of idealism and enlightened self-interest. They liked frugality. They hated the thought of American servicemen going into a war with bad equipment, or too little, because of Pentagon blunders. And they knew that "more bang for a buck" was still a good political stand.

Grassley had demonstrated the latter point. When I first started discussing things with him, some of my know-better friends had warned me that Grassley's star was sinking. His "family issues" seemed increasingly irrelevant to the hard-pressed Iowa farm economy. In the polls it was said he had about a 37 percent approval rating and was sinking fast. But once he started attacking military waste, he became the most popular politician in Iowa history.

The lesson, though, was lost on the national Democratic Party. With striking myopia the 1984 Mondale campaign wrote a platform plank that offered the Pentagon continued spending increases of inflation plus 5 percent.

In Denny Smith's district in Oregon, for example, the Democrats were frantic to defeat him. They had just gerrymandered his district. They found an attractive opponent, a popular state senator, and poured in campaign money from all over the country to support her. Denny Smith called for a military budget freeze; his opponent went along with inflation plus 5 percent.

Denny won.

But the American taxpayer lost. It soon became clear that the Reagan military build-up was no more than a spend-up. Despite Grassley and his allies, Congress continued to approve wild escalation in military budgets. But that escalation was buying fewer and fewer weapons: a lot more bucks and a lot less bang, and "stretchouts," which spread acquisitions over more years, were becoming commonplace. Projected unit cost increases could not be accommodated even within the huge sums Congress was giving Reagan. Pentagon budget planning starts about twenty months in advance of any fiscal year; the FY 86 plans were being made between January and May of 1984. Closet patriots on Weinberger's staff, appalled at the effects of letting unit costs get out of hand, leaked the figures shown in the table.


Senator Grassley followed up with another hearing in September 1984. To this forum congresswoman Barbara Boxer brought two military whistle blowers, Sergeant Thorn Jonsson and his superior, Captain Bob Greenstreet, who brought a large box of overpriced spare parts that the Military Airlift Command had acquired for the transport planes Jonsson and Greenstreet were helping to keep flying. The most memorable of these items was the $7,622 coffee pot for the C-5A. Other tidbits included a $670 passenger seat armrest.

Defense's defense, as pronounced by Undersecretary William Howard Taft IV was that the spare parts problem had already been cured by the discovery and elimination of "equal allocation of overhead costs." This was a formula by which the defense contractor supposedly allocated an equal amount of overhead, or indirect cost, to each part regardless of the part's direct cost. That is, a complicated and expensive spare part with a direct cost of $4,000 would have $1,000, say, of overhead added to its cost and be listed at $5,000; a cheap, simple part with a direct cost of $1 would also absorb $1,000 of overhead, thereby making the simple part cost $1,001. In an April 24, 1984, memorandum the DoD said this formula would no longer be used because it resulted in "distorted unit prices. Parts with very low intrinsic value appear grossly overpriced."

True or false?

False. The formula simply did not exist. Everyone who had anything to do with acquisition knew that contractors allocated their overhead as a function of the direct charges, usually as a percentage of direct dollars or sometimes as an amount per direct labor hour.

Grassley was infuriated by the equal-allocation excuse. Of Weinberger's promise to clean up spare parts procurement practices, he said, "Those who know better stamp 'B.S.' all over it."

Shortly thereafter Colin Parfitt and I were requested to appear before Senator Proxmire's Joint Economic Subcommittee to testify about the markup formulas of major contractors. After we had prepared the evidence, we were warned by the Air Force general counsel that the figures were "proprietary" and that we might make ourselves vulnerable to criminal prosecution if we revealed them. It was the same threat as before, and again it worked. It so inhibited my testimony in the hearings that I made a poor job of explaining matters.

On November 1, 1984, Richard Carver, the Republican mayor of Peoria, Illinois, replaced Russ Hale as secretary of the Air Force for financial management. The first memorandum we sent him was a request that the Air Force military chief of procurement, Lieutenant General Robert D. Russ, furnish some examples of contractors' equal allocation of overhead.

After a number of memorandums back and forth, General Russ, on January 15, 1985, confessed that there was no substance to the "equal allocation of overhead" excuse. He said, "All of the contractors over which we have cognizance use some measure of direct effort as a basis for allocating costs."

But lies are often very hard to kill. Just as I'd heaved a sigh of relief over the death of this one, it was born again in George Will's column in the Washington Post (February 3, 1985). Will, a medieval scholar who sometimes cites authority rather than relying on facts to "prove" his points, declared that the spare parts scandals were being exaggerated, a notion he based on an article by an academic:

Now, in the winter issue of The Public Interest, -- no liberal journal -- (Stephen) Kelman, of Harvard's Kennedy School of Government, argues that the horror stories about "waste" are almost always gross exaggerations. The (Grace) Commission specialized in such stories as: the Pentagon has been buying screws, available in a hardware store for three cents, for $91.00 each.

Make your blood boil? Simmer down.

Pentagon acquisitions rules stipulate that "overhead" expenses be allocated to each shipment as some fixed proportion of the value of the product. If the value is $5 million, the corporation might be entitled to add, say, 20 percent ($1 million) for overhead. Overhead includes cost above materials, machines, and labor -- cost of everything from legal departments to company headquarters.

The Pentagon orders many kinds of spare parts simultaneously. As an approved accounting convenience, many contractors allocate overhead on an "item" rather than "value" basis. Kelman illustrates this with an example of a $20 million order for 10,000 parts, some of which have a direct cost of $25,000 each, and others 4 cents each.

Instead of apportioning the $1 million overhead such that the $25,000 part gets a lot and the 4-cent part a little, the computer printout will allocate $100 to each part. This produces a charge to the government of $25,100 for the expensive part and $100.04 for the cheap one.

This drivel was so astonishing that I made a point of reading the Public Interest article to see if Kelman was really saying that. He was. He concluded that the whole misconception was based on an "accounting quirk" and that "although this produces horror stories, nothing horrible has happened."

I called Professor Kelman that Sunday morning to find out the source of his information. Did he have any specific, factual examples?

Well, no, he said. As a civilian, he "was not allowed to see actual cost figures."

Where, then, did he get the ideas for his article?

Kelman had called Bill Kaufman (a noted "defense intellectual") for referral to someone "whose judgment you trust" who could give "a dispassionate explanation" of the spare parts horror stories.

But, I asked, did judgment or passion have anything to do with the issue? Wasn't it purely a question of facts?

Kelman waffled a bit, then admitted, "Maybe so." At any rate, Kaufman had referred him to somebody whose name he didn't now remember -- possibly the minority staff director of the Senate Armed Services Committee. This authority had referred him to a Claude Messamore at the Pentagon. Messamore had given him the material for the article.

When I looked him up in the Pentagon phone book, Lieutenant Colonel C. E. Messamore turned out to be one of General Bernie Weiss's men in the Directorate of Contracting and Manufacturing Policy in the Air Staff. I called him.

Yes, he said, he was the source of Kelman's information.

But, I asked, how could he have given the professor such misinformation? I reminded him that the Air Staff, after many memos, had finally admitted that there was nothing to the "equal allocation" fable.

The colonel admitted that "equal allocation has not been a major problem." But, he said, there had been some examples. Air Force generals Dewey Lowe and Jim Dever had settled on a policy of "line item integrity" in pricing to make sure there were no pricing "distortions."

Had the generals dealt with the levels of spare parts prices? That, said Messamore, wasn't in their charter because it had to do with "productivity."

In short, Messamore was talking about a cosmetic treatment for overpricing, which was the root cause of the spare parts scandals.

We held a meeting with General Weiss, Colonel Messamore, and others, to which they were asked to bring some "equal allocation" examples. They produced nothing in the way of documentation, but a Major Mahler did assert that the infamous $435 hammer that the Navy had bought from the Gould Corporation's electronics division was a "true case." We could check that one out.

The hammer history (actually, there were two, a claw hammer for $435 and a hand sledge for $436) began when the walloping prices of these and other items in an order so shocked a Navy enlisted man that he went to Representative Berkley Bedell with the story.

Bedell, who had been a manufacturer himself, was baffled to see the price tags on the hammers, the figure of $652 for an ordinary tool box, and the $10,168.56 for the very ordinary tools that went inside. He went to a hardware store and bought all of these items -- of equal or better quality -- for $100.38.

The Navy's Bernie Weiss counterpart was a rear admiral named Joseph S. Sansone, Jr., who sent an explanation to Bedell's Small Business Committee hearings in October, 1983: "In Gould's proposal each item received an equal share of the non-hands-on support labor requirements, regardless of the value of the line item, which, when fully loaded with overhead and profit, amounted to approximately an additional $385.00 per line item."

Had we finally run an elusive "equal allocation" fox to earth? Colin Parfitt and I gave it a simple sanity test. We took the box and its tools and applied Sansone's "equal allocation." The table on page 178 shows the results. Sansone's excuse failed the sanity test. After the alleged "equal allocation" of $385 per item was removed, a $7.66 hammer still cost $50. After removing the equal-allocation markup from the Phillips screwdriver set, the cost would be negative $126.44. Confronted with this and other factual refutations of their fairy tale, Sansone's lackeys stammered to Colin Parfitt that the allocations were equal except when they were unequal.

Despite the total discrediting of this Pentagon fabrication, apologists have continued to trot out the same argument. Doubtless in the future other writers as gullible as George Will and Professor Kelman will front for the Pentagon again. The January 1987 Washington Monthly, in fact, got suckered with an article by James Fairhall titled "The Case for the $435 Hammer," in which the old myth got a new showing.

By this time, it was clear to anyone who wanted to know that equal allocation wasn't the basis of the trouble -- but what was? Were the defense manufacturers outright thieves? Or was there an unspoken excuse for these gross overcharges? When Bedell and his committee were totally stonewalled by Caspar Weinberger, the House Judiciary Committee picked up the matter and assigned it to investigator Ginny Sloan. She came up with an answer.

When she queried GAO executive Clark Adams, he explained that the apparent overpricing was the result of "full absorption accounting." Colin Parfitt, in a follow-up conversation, asked Adams how an accounting system, "full absorption or otherwise," could explain and justify the horror-story prices.

Adams finally answered, "Well, yes I did say that ... government is dedicated to full-cost absorption because it is the basis of our prices."


Parfitt commented in a memo for the record:

Mr. Adams meant that the prices the government pays major defense contractors are deliberately set at levels to insure total cost reimbursement, plus profits over and above that ... regardless of the intrinsic value of goods or services.

In short, the exorbitant prices ... are the result of incestuous partnership between DoD procurement ... and defense contractors to increase prices to whatever level it takes to absorb the total allowable costs.

Thus, when the Pentagon paid for a hammer, it also paid for a portion of all the expenses, the waste along with the necessary, of the favored supplier: heating, electricity, repairs, paper, salaries, office equipment, insurance, cocktail parties, advertising, the salaries of nonproducing engineers, trips for the CEO and perhaps his family, and a thousand other things. In short, because that seaman needed a hammer, the government was willing to give a corporation this all-expenses-paid free ride. And then pay it a profit on top of that. It was incidental whether the hammer head broke off at the first blow.

But wait, wouldn't "line item integrity" end all this nonsense? There happened to be some pliers almost as famous and even more exorbitant than the Gould hammer. They were Channel Lock duckbill pliers whose only distinction was a small groove in the jaws for holding a round pin. The pliers were supplied to Boeing by a consortium of the aircraft engine division of General Electric and SNECMA, a French engine manufacturer. They cost about $7.50 retail. Boeing resold them to the government for $748 apiece.

After Om Chauhan cited them before Grassley's committee in late June 1984, the Air Force announced, a bit prematurely, that the price had been reduced to $90 by formal contractual action. What followed was a typical Pentagon tragicomedy of errors.

We found that the total price of all the tools in the order had been reduced from $528,536 to $433,545. A step in the right direction? Not quite. Boeing had charged an additional $28,964 to "prepare the proposal" in the first place. With the new paperwork, the proposal preparation cost went up to $30,648. And another new cost popped up, an imaginative item called "Support Equipment Management" which cost the government $93,307. Lo and behold, after all the cost cutting, Boeing was still charging the government $557,500.

Wait a minute, we said to the Air Force flacks, this is a scam. Ninety dollars is still too much for a pair of $7.50 pliers, even if they do have a notch. And what of that support equipment management shell game? They agreed to take another look.


When we checked again in February 1985, the order had indeed been repriced a second time, with the results shown in the third column of the table. The pliers were now a bargain at $80 apiece, but the support equipment management bill had gone up to $143,259. The total price was exactly the same it had been at the beginning. So much for line item integrity.


A certain group of Air Force Intelligence operatives in the Pentagon who called themselves the Air Staff Closet Coalition contrived in 1984 to spring an interesting leak. My underground circles had nothing to do with this, but we were widely blamed for it. The coalition did a skillful job of leaking their case. They packaged their documentary evidence in case-study form with an excellent introduction:

At the end of each fiscal year (Sept.1, DoD invariable (sic) fails to obligate some funds that have been budgeted for specific purposes. The "fallout" funds result from various bureaucratic imperatives, including not getting the appropriate competitive bid or contractor. ...

The important point is that if certain budgeted funds are not obligated (as in a contract) by the end of the FY, they are by law returned to the treasury. The scramble to avoid returning ... unobligated funds is the real story here.

Here is how it works:

The team proceeds on the assumption that some DoD fallout funds will always be available as the FY draws to a close. In anticipation of this, a Pentagon office (in this case the Assistant Chief of Staff of AF Intelligence, or ASC/I) will negotiate "unofficially," in advance, a sole-source contract with a pet or crony contractor. The contract is drawn up in advance so that it may be signed on short notice when funds become available. By the time fallout funds are identified, it is too late for DoD to let competitive bids or otherwise legally obligate funds before the end of the FY. This is always so because the funds were originally budgeted for other (approved) DoD projects.

To move these funds from the fallout category and into pet contractor pockets, some cooperative agency other than DoD must "launder" the money for the prearranged contract. In this case that agency is the CIA.

The CIA is always a good choice for a number of reasons, the most important of which is that they are not subject to the same contracting restraints that apply to DoD. CIA can legally obligate funds in late September and they don't have to advertise for competitive bids. In short, CIA agrees to act as the official "sponsor." ... The advantage for CIA is that they get to build some capital with contractors with another agency's fallout budget monies.

The advantages for the originating DoD agency are obvious:

- They can funnel funds to cronies who have retired and now make their living selling "papers" to the government.

- These unregulated fallout funds represent a large, tax-supported slush fund that encourages conflicts of interest (e.g. government officials feathering their retirement nests by throwing contract monies at future prospective employers).

The Coalition's target was Major General James C. Pfautz, then assistant chief of staff, for intelligence (ASC/I):

The guy who is sponsoring the Pitt (University of Pittsburgh) connection is the Chief of AF Intelligence ... He is trying to farm out "sole source" contracts (without competitive bids) to some cronies at Pitt. The chancellor, the research director, and the proposed project director are all retired AF officers. To boot, the subject "papers" don't have a thing to do with AF intelligence concerns. The atchd. is another example of government/industry incest where the "old boys" take care of each other at taxpayer expense. Or the sponsor may just think he is feathering his retirement nest by throwing money at prospective future employers. Similar largess has been lavished on Dr. Jureidini at Abbot Assoc. of Alexandria, Va.

The memorandum went on to note that the proposed contract for the University of Pittsburgh had only the vaguest of terms and that in any case Pitt had no intelligence research capabilities.

The contract that had gone to Dr. Jureidini of Abbott Associates in Alexandria, Virginia, was for $41,000, for a paper on "the near-term events in Lebanon that impacted on USAF interests." The Closet Coalition noted that "the AF does not have any interests in Lebanon." The memorandum closed by asking why the general didn't ask his own staff of several hundred analysts, or CIA, or DIA (Defense Intelligence Agency) to produce such a paper if he really needed one.

Whereas such handouts to retired officer-teachers seemed to be no more than a small waste of money, other contracts to major defense systems contractors looked a good deal more sinister. Remember James Schlesinger's wondrous Dollar Model, described in Chapter 6, which paid (hypothetically) for the Soviet military machine in American dollars and with American contractor waste built into the equation? Now Pfautz was fueling up the old Dollar Model to once again inflate the Soviet threat and use our huge price markups to justify higher spending.

Task 12 on Pfautz's list of proposed projects, marked "CIA will fund in 1984," was titled "Development of CERs for Aircraft and Helicopters based on New Prices." CERs (Cost Estimating Relationships) were self-fulfilling did-cost/will-cost estimating formulas. In a note on Task 12, Pfautz wrote, "Based on the new production cost (American cost, that is) derived over the past several years, new CERs for aircraft and helicopters will create better (read: higher) cost estimates of Soviet military aircraft."

Paying the major systems contractors to make studies of CERs for their own products and to apply the same high costs to similar Soviet products permitted them to build in all the future waste and inefficiency they could imagine. It was like giving an alcoholic a key to the liquor store. Obviously, this was a job that demanded heavy conflicts of interests. Vought, a division of LTV, and McDonnell-Douglas, both of which made planes for the Pentagon, seemed ideal. The general tapped them. And who could better attribute their own padded inefficiencies to Soviet research, development, and production of jet engines than General Electric and Pratt and Whitney? Who knew better how to zoom the putative costs of command-control communications systems than the TRW Corporation? But the all-time prize practical joke was the project to estimate costs of the Soviets' new air-to-air and air-to-surface missiles. That was to be carried out by none other than Hughes Aircraft.

The Closet Coalition's comprehensive leak provided other interesting insights. General Pfautz -- obviously a man with no ear for the language -- even proposed a project he labeled "SCAM Improvement." And indeed it was. The Stonehouse Group was to "supplement current CIA efforts to improve the computer data base and model used to make most of their estimates of Soviet defense spending. It is basically a 'Price X Quantity' approach."

Sheila Hershow, now reporting for Cable News Network (CNN), did excellent broadcast coverage. The press (the Boston Globe, USA Today, and Defense Week) had discerning reports on SCAM Improvement. Writing in the March 20, 1984, Boston Globe, Fred Kaplan quoted an Air Force spokesman who said, "Who else would you turn to? These guys have the technical expertise and the knowledge." But he also quoted other Air Force officials who agreed with the comment of a former CIA official that "the estimates don't mean anything." Kaplan spelled out the fallacy in the whole notion: "If a company that gets one of these (Pfautz) contracts manufactures its weapons inefficiently, then the CIA estimate will automatically assume that the Soviets produce their weapons with equal inefficiency."

The great disappointment was that Congress failed to respond to these disclosures. Perhaps, after all the years of swallowing something akin to the Dollar Model figment, it was too embarrassed.


My first close look at my new boss, Richard Carver, came when we met in early October 1984 to discuss current programs. I told him that we had a series of promising cost-reduction initiatives under way, hampered only by the military's reluctance to concur. I suggested that establishing a series of tough goals for cost reduction and quality improvement, through a program for Air Force commanders and managers, would help to get us all on the same target. Such a course was designed to put into force Secretary Orr's announced objectives.

Carver looked at me coldly and said Orr had warned him about "the Fitzgerald problem." He didn't want to explain what that "problem" was, however.

Then, on October 15, 1984, Winslow Wheeler, assistant to Senator Nancy Kassebaum, called to warn me that the administration planned to get rid of me after the November election. His source was "a high-ranking Pentagon official." A month or so later Nancy Ramsey, chair of the Fund for Constitutional Government, told me she had heard that Carver's plan for getting rid of me would get around the obstacle of my court-supervised agreement with the Air Force: he'd make such outrageous provocations that I'd get angry and retaliate. Then I could be fired.

Jim Ririe was scheduled to depart from his Air Force job on December 1, 1984, and, as I had agreed with Russ Hale in June 1982, I was to take over the job of reporting to Congress on weapons systems. I wrote to Carver about beginning to work closely with Ririe on the reports in order to make a smooth transition. Carver replied ambiguously and spoke of the "apparent agreement." It was a foretaste of his later actions.

The Defense Department budget: total obligational authority for acquisition (research and development plus procurement), 1966-1985. Source: Office of the Assistant Secretary of Defense (Comptroller), "National Defense Budget Estimates for FY 1988/1989," May 1987.

When Kris Kolesnik paid him a courtesy call and expressed the hope that Carver would abide by my legal agreement with the Air Force, Carver replied that he didn't intend to let a court order tell him how to run his office. He quickly assigned Major Jim Wolfe to redistribute the duties of my office to other deputies. As revealed in an office diary Wolfe kept at the time, which Congressman John Dingell's investigators later captured and distributed, he met with Carver and others, including Air Force General Counsel Gene Sullivan, on January 4, 1985. Sullivan felt that reassigning some of my duties to another deputy was improper because it "infringes on FMM (Fitzgerald's) position description."

Carver thereupon ordered Wolfe and Colonel Warren Nogoki to write a new work plan for me -- one that would effectively put my office out of the cost reduction business. And in the end the general counsel approved the job description that began the whittling away of my responsibilities.

The timing of all this was interesting. My period of uneasy acceptance by Verne Orr and the Reagan team was over. They had identified the real enemy: it wasn't high costs, it was Fitzgerald. Reagan, who had just won a landslide victory and would never run for office again, could have ignored the pressures of big contractors and Pentagon generals. But as the chart on page 184 shows, his FY 1985 acquisition appropriations were the biggest in history. If Reagan had applied the cost controls we had shown him, he could have had an overwhelming military machine. Instead, the Reaganites were having to cut planned quantities of weapons. Even with the huge increases in available money, the military buildup couldn't be sustained.
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

Postby admin » Sat Nov 02, 2013 1:49 am

11. Poor Richard's Network

CONGRESS, STUNG AT LAST, tried to slow the Reagan Pentagon's spending orgy by means of the Freeze. It was a little more than a tut-tut, a little less than a pair of handcuffs. Someday, when the fiscal history of the nation in the twentieth century is written, there will be one page for the half-courage of Congress in the mid-1980s, which tried for a moment to stem the Republic's slide toward bankruptcy.

The Freeze was the brainchild of Senator Charles Grassley and his assistant Kris Kolesnik. Some members of Congress found it easy to put on a show of clucking over a $500 cotter pin, but many of them just walked away after the show was over. Grassley listened to us, and listened hard. He absorbed the lessons about our effort to make separate but related drives against the various elements of overcast, that is, labor, material, overhead, and so forth. He was especially concerned with our work measurement initiative for its usefulness in depicting factory incompetence, gauging management efficiency, and indicating cures.

He summarized all this in his June 25, 1986, letter to President Reagan:

Fitzgerald and his associate, Dr. Thomas Amlie, helped me and the Senate Budget Committee that year (1983) to understand the extent of the spare parts problem and its impact on the rest of the budget. It has become clear since then that the overpriced spare parts phenomenon is a symptom of an overpricing policy in general in the defense weapons business.

Grassley also noted the costly problems of factory inefficiency and ended with this delicate expression about the Freeze -- that the Senate, after a two-year fight, had set a budget in 1985 that "did not create further disincentives to efficient weapons pricing." That is, the Senate had removed some of the money that the Pentagon would have felt obligated to waste.

Senator Grassley recognized the value of true competition both as a spur to cutting costs and improving quality and as a means of limiting opportunities for bid rigging. Advertised solicitations and sealed-bid responses were used for only about 6 percent of the Pentagon's acquisition dollars. The rest was sole source, "competitive negotiations" (lodge brothers only), and "follow-on to competition" (sole source, too). Beginning in 1983, Grassley introduced a series of bills that he called "Creeping Capitalism." The first of these bills required an increase of 5 percent per year in the Pentagon's competitive procurement until true competition reached 70 percent of the total contract dollars spent.

By moderating the bureaucratic necessity to shovel out the money before the end of the year and by putting a little downward pressure on weapons prices, we hoped to rally all true hawks around the Freeze flag. After all, wasn't it better to have in the arsenal more weapons that work than to have fatter and fatter generals and defense contractors? But the race of true hawks either had been corrupted by the pork barrel or had died out. They simply didn't show up at the antiwaste rally.

A notable nonshow was Verne Orr, whose oratorical war against high costs was over: high costs had won. Verne had surrendered. Now it was entirely up to a few tightwad members of congress like Grassley. In early 1985, when he began to work on the FY 1986 budget, Grassley tried unsuccessfully to get the usual update on work-measurement information from Orr's office. The office of the secretary of defense had not been forthcoming, either.

So Grassley wrote directly to me and, working with Carver's principal deputy, Richard Harshman, and the Air Staff's chief financial lobbyist, Duff Young, we prepared to furnish the information. The three of us planned to meet with Kolesnik in Harshman's office to go over the details. At the last minute Carver got wind of the meeting and moved it to his office, where he took charge and declared that Grassley was not to get the information.

Kris wanted the denial directly from Orr; Carver said that could be arranged, but not with Kolesnik present. Carver disappeared for a few minutes and came back with an oral reply from Verne Orr: no work measurement information for Congress.

As he'd proved before with his subpoena invasion, Charles Grassley was not a timid man. He -- in alliance with Representative Barbara Boxer -- decided to pass a law to get the weapon systems cost data he wanted.

In due course, after some interesting congressional battles, the Grassley-Boxer bill was enacted in 1985. The law, which was known in my circles as the Richard E. Carver Memorial Cost Data Act, came as a big shock in a lot of contractors' board rooms, at lobbyists' cocktail parties, and to their Pentagon lodge brothers.

From time to time, in the early days, I'd been praised for my labors in getting a useful system of work measurement, but that was because I seemed to be a good public relations symbol. Once it was clear that I and my office wanted a real knife (work measurement) that made real slices and drew real blood, things changed.

The Troika -- our name for the unholy alliance of the Air Force procurement people, the office of the secretary of defense, and the industry associations -- had to put a stopper on Grassley-Boxer. They picked Maryanne Gileece, Eleanor Spector, and Richard Stimson from the secretary's office to do the infighting.

Gileece and her team didn't know much about work measurement, but they did know the right buttons to push in Congress -- or so they thought. There had been a time when an authoritative letter from Gileece would have cowed the pliant Armed Services Committee. But, though the Troika didn't realize it, they were dealing with a new, tougher breed on the Hill. Tougher and more honest. Donna Martin, for one, had made a difference when she left her job as assistant to Dina Rasor at PMP to work on military issues for Representative Barbara Boxer. Donna's PMP experience had toughened her outlook and given her good insights into how the Pentagon acquisition system worked.

At this point it came down to a duel, if David's little episode with Goliath could be called a duel. The Armed Services Committee staff had seen the wild discrepancy between our documentation and what the Troika was trying to sell. So they arranged a debate in the committee's staff room to clear matters up. Goliath had the bulk: all the resources of the office of the secretary of defense, the vast research facilities of the big contractors, and plenty of tame academics. The Attic Fanatics had one pebble of truth and an old, much-battered engineer to sling it.

At the appointed time, I appeared at the Armed Services Committee forum, but Goliath didn't show up. Needless to say, my side took advantage of the chance to educate the assembly.

Meanwhile, Richard Carver was stealthily doing what couldn't be done in open debate; he used the bureaucratic mechanism to disarm us by sending us a lot of busywork assignments. He made a pact with General Larry Skantze, head of the Air Force Systems Command, to impede us. And he began to dismantle my hard-won jurisdiction awarded by the courts.

At one time I'd delegated part of my work measurement responsibilities to the AFSC, and now I wanted it back, simply because my flow of information on the subject had been narrowed to the trickle I got from closet patriots. General Robert Reed, to whom I'd sent my request, quietly got together with Carver, and the two of them decided to tell the military staff and field commands to disregard me. When this was revealed later by John Dingell's investigators, I faced Carver and asked him how he could so easily overlook my court-ordered contract.

It was simple. "Your court order only says that you can give guidance and direction," he said. "It doesn't mean that anybody has to follow it."

On September 9, 1985, Carver and I were invited to testify before Senator Proxmire's subcommittee. Without giving me any notice, Carver used the occasion to announce a sharp reduction of my authority. I had been the person in charge of work-measurement matters at the highest level in the Air Force; now I was to be no more than a staff adviser on the subject.

Even at that, there were still some painful things for the big contractors that Grassley-Boxer had made into law. The provisions for ready availability of figures and, more particularly, for comparisons of should-take hours times with actual times was a nagging headache for the acquisition community, both sellers and buyers. They regarded it with the affection of a bank robber for a closed-circuit television pointed in his direction.

Grassley-Boxer had to go. General Skantze, engines roaring, made the first bombing run at a meeting of the Aerospace Education Foundation Roundtable on August 15, 1985. As the November, 1985, Air Force Magazine reported:

"Sometimes it is an arcane feature of the acquisition rules that leads to misunderstanding and the loss of public confidence. For example, a statutory provision new this year -- use of a 'standard work hour' in billing labor costs -- seems almost certain to generate the sort of misinterpretation that has so often enraged the taxpayers."

General Skantze pronounced it (the Grassley-Boxer approach) "an enormous club with which we can be beaten continuously."

"Very few people on the Hill really understand what a standard hour is and how you arrive at it," he said. "It is the calculation made by an industrial engineer who picks out a point in the production cycle where changes have slowed down, where there's stability in a design, and where the people are trained." He says that "under these ideal circumstances (a given job) should take a number of hours."

"Used properly, the standard hour is a handy tool for estimating and pricing. Applied as an absolute yardstick at the beginning of production, though, it may be off by a factor of five or ten," General Skantze said.

"So someone will take that data, as they have over the past six months, and say that the industry is only one-third or one-tenth as efficient as it should be and that they're wasting all the taxpayers' money," Skantze said. "We're going to have a terrible problem with this because we've got to provide the data, and it will be interpreted by those people who want to use it for their own purposes."

Among Skantze's various misunderstandings, he clearly didn't comprehend that our "fair day's work" approach called for setting attainable times reflecting current, not ideal, conditions and methods. His eccentric address proved again that the Troika was desperate to avoid legitimate reporting: "We're going to have a terrible problem with this because we've got to provide the data."

Apparently the Troika couldn't find an independent professional industrial engineer to defend their view; at least they never came up with one. Their usual spokesman was a procurement functionary with obvious conflicts of interest, so we had no trouble busting their balloons.

In trouble, the Troika turned to high-tech conspiracy. They went to an enterprise called the American Productivity Center (APC) in Houston, Texas. That optimistic name made my heart soften -- until I saw the list of advisers, sponsors, members, and sustaining members: Boeing, General Dynamics, Lockheed, Northrop, McDonnell-Douglas, Rockwell, TRW, et al., along with their Big Eight certified public accountants and the bosses of big defense-industry unions.

APC set up a "Defense Industry Productivity/Quality" computer message network, which began an attack on the hated Grassley-Boxer law. Computer conferencing is obviously the late-twentieth-century substitute for secret messages left in a hollow tree.

As might be expected in the committee culture of big business, the network had a moderator, whose stated role was to "help set the initial agenda for discussion, to guide and direct the discussion as it moves along, to make 'weaving' and 'summarizing' comments, to synthesize thoughts, to stimulate the group, and to remind them of priorities." He was Dr. Richard Stimson of the office of the secretary of defense, code name "Poor Richard," code number 2103. (Benjamin Franklin) the original Poor Richard, said in his Almanack, "A penny saved is twopence clear.")

As the Troika was beginning to find out, Congress had changed from the good old days of Mendel Rivers and his ilk. The House Armed Services Committee, long known as a money shop for the Pentagon, was under new management. Les Aspin, an intelligent, energetic, and ambitious congressman, had succeeded Mel Price as chairman -- just in time to be faced with a snakepit of horror stories too fearsome for even the old committee to explain away.

Aspin set up a special subcommittee on procurement policy, headed by Congressman Nick Mavroules of Massachusetts. On it he put, as ad hoc members, some of the most caustic critics of Pentagon boondoggling in Congress, including Barbara Boxer. Mavroules, with consent from Grassley and Boxer, offered to mediate the dispute over their law.

Step one was public hearings in April 1986 at which Senator Grassley, Ompal Chauhan, and I were invited to testify in favor of work measurement. The opposition witnesses were some titans of industry and Assistant Secretary of Defense Jim Wade. Through Kolesnik's good offices, I'd previously had a meeting with acquisition czar Wade, and we'd actually persuaded him to agree to some of our technical positions. In the hearing he announced his modest concessions and tried to avoid the hazards of work measurement. The titans just mumbled. We scored a no-hitter against them.

The titans of industry tried again. They got Mavroules to set up a meeting in his office with Grassley, Boxer, and me in the lineup against various Daddy Warbucks types. The result was an impasse. In the spirit of fair play, Mavroules did agree to more attempts at mediation; he appointed Rudy DeLeon, one of the committee's most competent staff assistants, as mediator to try to clarify provisions the Troika representatives said they didn't understand. But it was like dealing with the old Russians; the other side wanted to get but not give. Each time Grassley and Boxer made concessions, they were faced with bigger demands from the Warbucks side.

Then, making their move in Congress to strike down Grassley-Boxer, the Troika committed some dire mistakes. To lead the fight, they picked Republican Representative Jim Courter and Senator Dan Quayle. Neither had substantive knowledge of the issue. Courter had been a member, albeit a somewhat suspect member, of the Military Reform Caucus on Capitol Hill. He had shown considerable reluctance to hurt the feelings of the big contractors. And he didn't know much about work measurement. With Quayle and Courter as point men, the Troika decided to push for a repeal of Grassley-Boxer.

Donna Martin was crushed. She had worked hard and in good faith to negotiate a compromise solution, and now she had been double-crossed by the move to repeal. But as she mournfully gave me this news on the phone, I could hear Barbara Boxer, a small woman blessed with a powerful voice, in the background. She was denouncing her opponents, swearing to fight them on the floor of the House and suggesting some rude violations of their persons.

Grassley's reaction was more measured but equally determined. In a floor speech on the double-cross, he said that industry was trying to "shut all the windows we opened last year on defense factory inefficiency, on huge defense contractor rates, and on excessive costs for defense weapons." He knew why the repeal effort had been launched: "Open windows reveal a lot of embarrassing activity." And Kris Kolesnik gave a hint of Grassley's strategy to Aerospace Daily when he told it, "This has the potential to hold up a conference agreement on the defense bill."

Actually, the double-cross was good news for us. Our side, with nothing to offer in the way of campaign contributions or jobs, was bound to lose in backroom "mediation" dealings. But in an open floor fight Grassley and Boxer had the better of the argument.

The traffic on Poor Richard's ironically named productivity-quality network became more urgent. Some of the addressees in the network, unsympathetic to the Warbucks cause, were keeping us informed. On July 1, 1986, Richard Engwall, a Westinghouse official, sounded the alarm:

SUBJECT: Grassley-Boxer -- Shift on Work Measurement. Please find attached article in June 27, 1986 Aerospace Daily of Grassley, Boxer Shift on Work Measurement. Pat Sullivan, AIA (Aerospace Industries Association), has asked me to help defuse this activity. Please contact your Senator/Congressperson of your views and/or help furnish our White Paper On Work Measurement/Cost and Price Management Interrelationships as requested in my letter of June 10, 1986.

The message went on to mention the aborted compromise attempt and said that Courter's attempt to repeal Grassley-Boxer "has backfired on us." It continued:

Rep. Boxer has withdrawn any support for compromising and is planning to take the legislation back to the full house for a "repeal/no repeal vote." We need to communicate to all of our individual congresspersons of our concern for the cost and price management legislation being implemented as stands, and urge repeal. We were and still are willing to insert language similar to that submitted to James Wade, 30 January 1986. We have an apparent tough job ahead of us. I welcome your ideas and comments.

Engwall's network message also went to Pat Sullivan of AIA, to its "Productivity Committee," and to the "15-80 work group" of CODSIA, and it was helpful for us to know what these powerful lobbies were up to. We also got information from industrial engineers at various contracting companies. As a sidelight, it was fascinating to see Representative Courter, who was being educated about work management by the Sperry Corporation repeat his well-memorized lessons in his speeches. Sperry later merged into Unisys Corporation, which became a prime investigative target.

Grassley and Boxer let the industry partisans in Congress have their fun in repealing Grassley-Boxer 1. Then Representative Boxer offered a measure almost identical to the one repealed except for clarifying language. Boxer's restoration was passed overwhelmingly by the House. In the next move, she and the senator used all their leverage to see that Grassley-Boxer II stayed in the Defense Authorization Bill in conference with the Senate.


During the Freeze period Congress did some good work in digging into the acquisitions mess. One who sort of sidled into the fray was Representative John Dingell, known as "the Truck." As chairman of the formidable Energy and Commerce Committee and the tough Oversight and Investigations Subcommittee, with the biggest budget and the broadest jurisdiction in Congress, except for the appropriations committees, Dingell was a very large truck indeed. If some matter of interest didn't fall into the category of either energy or commerce, it very likely fell under the jurisdiction of one of the regulatory agencies, which Dingell also oversaw.

One of those regulatory agencies was the Securities and Exchange Commission, so no eyebrows had been raised in May 1984, when Dingell asked Verne Orr to permit me and my two assistants to give the Oversight and Investigations Subcommittee some part-time help in "an SEC matter."

The matter he had in mind was the still-gestating General Dynamics scandal. Orr didn't know that, though, and he was very happy to divert the Attic Fanatics to any seemingly harmless activity. The broad story of that scandal has been amply chronicled elsewhere. But some of the lesser-known aspects still stick disagreeably in my mind.

Pete Stockton led the charge for Dingell. Soon after the start of the investigation, he confided to me that General Dynamics officials had told Dingell that if we persisted, we would hurt some people we liked and admired. That had no effect on either the congressman or Stockton, but we shortly found out what they meant.

The company officials made it very easy for us to find records of thousands of dollars' worth of gifts and favors they had bestowed on Admiral Hyman Rickover. The sharp-tongued old admiral had his faults, as we knew, but they were outweighed by his readiness to denounce ripoffs by the big contractors and the seriousness with which his pronouncements were received on Capitol Hill.

Slowly, methodically, patiently, General Dynamics wove a trap for the admiral. Rickover used to make frequent trips to the company's Electric Boat shipyard in New London, Connecticut, to check on the construction progress of "his" nuclear submarines. He was present at launches, and he went on shakedown cruises. General Dynamics saw to it that he lacked for nothing on these visits. He didn't have to bring as much as a toothbrush or an extra shirt on a shakedown cruise. At a launching, where gifts to dignitaries are the custom, there was always some expensive bauble for his wife. (Two gifts of jewelry for Mrs. Rickover were shown in the General Dynamics accounts as "10 retirement watches.")

In Rickover's case the General Dynamics accountants kept marvelous records. They might not know exactly what they were spending on multimillion-dollar submarines, but they knew to the last cent how much they had spent on Rickover's toothbrushes. They hoarded all those little expense vouchers for twenty years, but somehow managed to have almost no records at all on other high-ranking government officials. These expense vouchers were, for the most part, blank.

The discovery of the Rickover records came as a hard blow to me. For years, as I rode the shuttle bus between the Pentagon and Capitol Hill, I'd had time for a few minutes of reflection. Some of my greatest highs and lows of spirit had come then. The bus ride back after Stockton showed me the Rickover records was one of my lowest points.

Before the subcommittee hearings on General Dynamics began, Secretary of the Navy John Lehman made a desperate attempt to change the focus from the great and grave accusations against General Dynamics to Rickover's acceptance of gifts. It didn't work, and Dingell wrote Lehman a blistering letter telling him just why it wouldn't work. Without condoning the admiral's faults, Dingell refused to be sidetracked.

The investigation pressed on. Dingell and Mike Barrett, the subcommittee's staff director and counsel, drafted some good auditors and investigators from GAO. Once free of the stifling GAO hierarchy, such men as Bruce Chafin and Art Brouk did first-rate service.

They also brought in George Spanton, now retired from the DCAA but still involved in the special counsel's investigation of his ordeal. When Chip Terrill came up with evidence that Weinberger and his assistant, Vince Puritano, were implicated in the plot against Spanton, the special counsel choked, took a wrong turn legally, and eventually lost the case in court.

The key witness in the General Dynamics investigation never appeared in court. He was P. Takis Veliotis, a former executive vice president of the company who was by then a fugitive from justice. Faced with imminent indictments on the charge that he had taken kickbacks from subcontractors, he had fled to Greece, his native land, taking along a lot of evidence about other General Dynamics executives.

Veliotis didn't understand the American system of justice -- I mean the one practiced by our Justice Department. He naively thought that the department would be so eager to get incriminating evidence on the other General Dynamics suspects that they would let him plea-bargain for a reduced sentence. He didn't understand that the last thing the Reagan Justice Department wanted to do (especially with Ed Meese in charge, toward the end) was prosecute the highest officials of our largest defense contractor.

When he got no response from Justice, Veliotis began to leak information to Stockton and Pat Tyler, a Washington Post reporter. At this time Dingell was under heavy pressure not to proceed with his hearings, but when Stockton shrewdly disseminated tidbits from his hoard of evidence, the media took such an interest that Dingell was able to fend off the political pressures.

His first General Dynamics hearing, on February 28, 1985, brought out the largest and most diverse group of print and electronic media reporters I've ever seen at a military procurement scandal hearing. At one point I counted thirty television cameras in the hearing room.

Dingell's staff had done a superb job of preparation; the committee congressmen -- especially three young Democrats, John Bryant of Texas, Gerry Sikorski of Minnesota, and Ron Wyden of Oregon -- were raring to get started. Sikorski led off with an eloquent statement about "the charmed life of General Dynamics":

Who else can record the largest loss in history, over five billion for tax purposes, at the same time record a two-billion-dollar profit for SEC purposes, and still pay no federal income taxes since 1972?

Who else can buy in on a major defense contract, do a miserable job of managing the construction of the weapons system, overrun fixed-price contracts by one billion dollars, be willing to settle a claim against the government for one hundred and fifty million dollars, and later receive close to one billion dollars in taxpayers' money?

Who else could use non-conforming steel in a submarine, foul up the welding program, suffer a total collapse of its quality control program, make a preposterous claim against the Navy insurance process, and then obtain another government bail-out?

What small contractor could suffer the wrath of the Secretary of the Navy, go to the White House and meet with Mr. Meese, then have a pleasant meeting with the Secretary of the Navy that results in the Assistant Secretary running out to your corporate limousine like a puppy dog to assure you that the Navy will take care of you? And where else can that Assistant Secretary get hired eighteen months later as an executive vice president? Mr. Chairman, the questions continue.

Chairman of the Board David S. Lewis and Executive Vice President Gorden MacDonald could see they were in for a rough day. They had to listen to P. Takis Veliotis's tape recordings of General Dynamics executives plotting to conceal cost overruns caused by their own inefficiency so that the charges could later be attributed to changed requirements from the Navy. Dingell and other subcommittee members grilled them mercilessly on that.

They had to listen to the live testimony of their former vice president, who testified that those same overruns were indeed caused by General Dynamics' bad management and ineptitude.

They had to endure allegations that Lester Crown, a director and the son of their beloved former chairman of the board, had admitted to involvement in a bribery scheme and that he had been given a Top Secret clearance afterward. (As stated in a February 7, 1985, letter from Dingell to Weinberger, Crown had bribed certain Illinois legislators with $15 thousand of his own money -- he'd then had a wholly owned subsidiary falsify its books to reimburse him.)

General Dynamics put up a rickety defense, mostly by attacking Veliotis. MacDonald and a couple of his flacks, F. Bettinger and R. Duesenberg, had tape-recorded their conversation with Pat Tyler on the proposed strategy. When MacDonald, under oath, had to admit the taping, he was forced to produce the tape. Duesenberg said to Tyler:

Pat, that guy began to steal, Veliotis, almost immediately upon coming aboard began to set up the scheme by which he stole from this company. So you know what the guy was doing, was just carrying out his sordid criminal instincts by creating Pearl Harbor files that he may hopefully, from his point of view, use sometime down the line. Because as he's stealing this money, along with his colleague, Jim Gilliland, he has to have in mind that somewhere he may be caught, and that's exactly what happened.

Luckily for General Dynamics, the Justice Department was the evaluator of many of the heavy-duty charges, so the company was able to slither out from under them. When it came to human-scale offenses that the ordinary taxpayer could judge, they were not so lucky. The expense vouchers turned up by the investigators were plentiful and outrageous. There was the $18,650 bill from the Old Warson Country Club in St. Louis, $17,000 of it for executive James Mellor's initiation fee and $1,650 for the club's "debt conversion note."

Crown, Duesenberg, Lewis, and E. J. Lefevre ran up hefty hotel bills at nice resorts. Former Navy Assistant Secretary G. A. Sawyer, who had run after the corporate limousine like a puppy dog, relaxed in equal splendor. General Larry Skantze and many others were entertained at the Annual Wallow of the Military Order of the Carabao (water buffalo). General Dynamics spent and the Pentagon paid. Out of the defense budget. (Take that, Evil Empire!)

John Dingell's favorite infamy was the expense account of General Dynamics' Dr. A. M. Lovelace and wife. Their expenses were charged to the common overhead expense pool, of which the taxpayers paid 94 percent. Dingell read aloud, "Fursten, boarding at Silver Maple Farm, $87.25." "Who is Fursten?" he asked. Fursten was a dog. When Dr. and Mrs. Lovelace took luxury trips at the taxpayers' expense, Fursten lived in canine bliss at $25.26 a day. That was more than I received in expense reimbursement when I stayed on military bases on government business trips.

Question: of the numerous sordid examples of big-time larceny and of moral and legal failure in the General Dynamics scandal, which one caught the attention of the press? Fursten, of course. The subcommittee office was overwhelmed with requests for vouchers showing his board bill. Fursten was probably the least expensive General Dynamics executive feeding at the public trough, but his case was one that people could understand.

When the case against the company had been well-displayed in all its ugly details, the Pentagon damage-control PR crew went into action. Their party line read this way: yes, General Dynamics is much to blame, but this is a unique case, an aberration. We don't know of anything else like it.

Dingell wanted to shoot this down quickly, so he called another round of hearings for April 23 and 24, 1985. At this point Weinberger announced that he was going to try to recover $244 million in excessive overhead charges from General Dynamics. Dingell was unimpressed. In his opening statement at the April 23 hearing, he said:

In announcing his actions to recover two hundred and forty-four million dollars from General Dynamics ... Secretary of Defense Weinberger claimed that General Dynamics was an aberration. Today and tomorrow, the subcommittee will expect to hear testimony and see evidence that, far from being an aberration, the company was just one of the gang. False reports and false claims, incomplete records, and an unfortunate attitude of "catch me if you can" seem to be standard operating procedures for major defense contractors. The cost of these things to the taxpayers is, of course, immense.

Several days after the committee disclosed that the government was paying for obviously unallowable overhead expenses, including the boarding of this country's most famous dog, Fursten, Secretary Weinberger announced his get-tough policy. His first action was to require all defense contractors to submit certification, under penalty of perjury, of the propriety of overhead charges at various steps.

When major defense contractors complained, the Department of Defense general counsel advised them that the Pentagon was not really considering criminally prosecuting fraudulent certifications. They continued to complain, so a deputy undersecretary further softened the blow: the contractors would have to certify their overhead charges only at the final settlement, thus eliminating any benefit to the taxpayers of the certification requirement.

Pratt and Whitney was the star attraction at the April hearings. George Spanton, the principal witness, had worked closely with FBI Special Agent James Cavanaugh of the bureau's Miami office on the FBI's investigation of Pratt and Whitney. When Stockton went to see him, Cavanaugh was frustrated over what seemed to be Justice Department moves to ensure that Pratt and Whitney would not be prosecuted effectively. This, along with other devious behavior by the department, convinced Dingell and company that the fix, if not already in, was en route.

Spanton did his usual, calm, meticulous, and devastating job of explaining how Pratt and Whitney unloaded huge entertainment bills for their executives and Pentagon lodge brothers onto the taxpayers. Dingell and company went through the whole grand swindle. There was the $67,500 company contribution to Air Force General J. T. Edwards's wife's art club. And the $53,268 bash at the posh Breakers Hotel in Palm Beach; the $10,220 for fancy gift pen and pencil sets; $3,231 for a gathering at the King David Hotel in Jerusalem; $9,100 for Navy baseball caps (top brass got gold scrambled eggs, middle brass got silver, and the hired help plain cloth); $43,672 for an outing at the PGA Sheraton Golf Resort in Palm Beach; $7,085 just for hors d'oeuvres at the same resort; $4,596 to pay for a seminar for executive wives -- the bills went on and on endlessly. Pratt and Whitney showed a touching love of hearts and flowers: $813 for corsages at the Fighter Fling Ball and $2,735 for strolling musicians at another party.

The company didn't forget charities to needy politicians who could help out. Candidates for the Florida legislature, the local sheriff, the local supervisor of elections, the Palm Beach County Commission, the county school board -- all of them went away happy. And you and I paid the bill.

Spanton testified that these corporate thieves even billed the government twice for many of these expenses. Over the years, he said, Pratt and Whitney "duplicated two million, nine hundred thousand dollars in various general and administrative expenses." When caught, the company had paid the money back. When George asked for an investigation of this fraud, the DCAA doctored his report, trying to reduce its impact, then passed it on with his original signature.

What did the hearings accomplish? They probably ensured the success of the legislators' "constant dollar freeze" on the Pentagon, and they were the high point of congressional resistance to Reagan's profligate spending.

Enough was enough, though. The administration wasn't going to take any more of this exposure to the cold winds blowing on the Hill. It refused to let FBI Special Agent Cavanaugh testify, on the excuse that it had reopened Cavanaugh's investigation of Pratt and Whitney, which was therefore "ongoing." (Actually, no new investigation took place.)

In addition, the Air Force refused to clear my statement -- about how the Pentagon's audit and investigative organizations performed in internally controversial situations -- for open publication. The Air Force's final verdict was that I could testify at Dingell's hearing but that any testimony I gave about my first-hand experience wouldn't be cleared except "for security purposes." This again left me vulnerable to the private damage suits Chip Terrill had warned me about, so I did not testify.

A good thing, too. Later investigation by Dingell's staff showed that my bosses were just waiting for me to slip up. The Air Force general counsel and several subcontractors discussed how Pratt and Whitney could sue Colin Parfitt and me for releasing Pratt's formulas for pricing spare parts and engines. We didn't release the formulas, but Senator Proxmire did. The Pentagon plotters had no stomach for taking him on, however.

Other traps were set (several are outlined in Major Jim Wolfe's diary of events during the period). I managed to avoid any misstep, but once again the administration, both in my case and in Cavanaugh's, had denied Congress information and had gotten away with it.
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

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12. The Phoenix Flop and Other Horror Stories

POOR RICHARD'S DEFENSE INDUSTRY Productivity/Quality Network was distinguished both by its breezy style and by the unintended opportunities it provided for insights into the motives of its correspondents. The messages were almost always edifying. For instance, the July 2, 1986, alert from Poor Richard (Stimson) himself:

Here we go again! The AF (Air Force) conducted a "tear down" of a missile. They found a large number of minor discrepancies -- none of them critical to operation.

So what's the Problem? -- Fitzgerald participated in the review.

I'll make a bet that "horrer" (sic) story on quality will hit the papers soon. If you like that bit, how 'bout another bit that a congressial (sic) hearing will also be in the wind.

It seems like AF likes to shoot themselves in the foot. If they take the position that there is a big problem, why didn't the AFPRO catch it earlier? If they take the position that there is no problem, then it's the classic cover-up with Fitzgerald blowing the whistle. Either way the industry loses.

Here we have Poor Richard, a high Defense Department official, not exactly worried about a bad missile but much concerned about bad publicity for "the industry." In this case the part of the industry he referred to (but was too delicate to name) was the Hughes Aircraft enterprise at Air Force Plant 44 in Tucson, Arizona. That plant reminded me of the traditional saying of British drill sergeants as they looked over a bunch of awkward recruits: "I don't think you'll scare the enemy, but by God, you do scare me!"

Poor Richard seemed sensitive to one of our group's small successes. Our efforts had contributed to the shutting down of Plant 44 because of poor-quality work. I'd kept in mind my 1982 visit and the serious problems we turned up then. With the valuable help of Ompal Chauhan, we kept trying to pierce the Blue Curtain whenever we could to track the quality problems at Hughes. In April 1983 Tom Amlie and I had made another visit, meeting privately with a civilian named Al Colt, who was deputy quality control chief at Plant 44.

Colt didn't deny or downplay any of our observations, he just shrugged. Getting a little annoyed, I told him that when I was a young quality control engineer, the Air Force had shut down my employer's plant for far less serious shortcomings than the ones in Plant 44.

"Are you suggesting I should shut Hughes down?" Colt asked incredulously.

"Damn right, " I said. "Why not?"

Colt just laughed; he wouldn't say anything more.

Over the next months we kept hearing horror stories of astonishingly high costs and astonishingly bad quality. One constant source was John Long, an investigative reporter for the Arizona Star in Tucson. Many Hughes employees had gone to him with such stories, and urged us to meet with some of them.

In January 1984 Colin Parfitt and I made another visit to Tucson. In our long first day reviewing the plant, we found the situation as bad as or worse than it had been before. And the Air Force plant representative was downright obstructionist.

At midnight that night my telephone rang. The caller identified himself as a young Air Force officer who had been in on some of the day's meetings and had seen how the AFPRO was stonewalling. He'd agonized over making this call, but he'd finally decided he must, "What's going on out there is sabotage," he said. We were on the right track, asking the right questions, and we shouldn't give up until we got answers. He'd do what he could behind the scenes to help -- but if his superiors suspected he was even sympathetic to us, his career would be finished.

John Long led us to some excellent sources, most of whom we met at his home. One of them was seriously ill and in the hospital, where John arranged for us to talk with him and his wife. From what this man said, Hughes seemed to have had a quality-control collapse (along with its cost-control collapse), and the Air Force plant representative was helping cover it up.

If Hughes had trouble building a high-tech missile, it was still very good at building a low-tech stone wall. We finally went away frustrated, with plenty of disturbing information from clandestine informants but no objective, documentary evidence with which we could make a case to the Air Force.

Tom Amlie thought he had a roundabout method. Among his very good contacts in the Navy acquisition organization was the chief of naval materiel, a four-star admiral named Steve White. Tom was convinced that White was committed to stopping the flow of shoddy equipment and weapons to the fleet. As it turned out, Admiral White needed our information more than the other way around. He had heard nothing but good reports -- "happy talk" -- about the Navy's Phoenix missile being produced at Hughes's Plant 44. This had raised some questions in his mind, so he asked Tom Amlie for a special out-of- channels report for his eyes only. It was so secret that it was typed with Tom's fingers only, and it went directly to White.

At the time I was trying, without success, to get Secretary Orr and Acting Assistant Secretary Dick Harshman to do something to correct the cost problems and the less well documented quality problems in Tucson. But in early June 1984 we had a breakthrough. Out of the blue, I had a telephone call from John McGee, whom I'd met through Senator Proxmire in 1969. John had been a Navy fuel inspector who had blown the whistle on some big-time fuel thieves in Southeast Asia and had gotten into serious trouble thereby. Proxmire had headed off the worst of the reprisals, but John had had to get out of the fuel inspection business. After a long time in do-nothing jobs, he had found a place in the Navy as a quality control specialist and had since worked up to a supervisory position at the Navy Fleet Missile Test Center at Point Mugu, California.

McGee was in charge of a group of Navy quality specialists who traveled around the country doing "tear-down" inspections. They would select a missile that had been accepted by the contractor's quality control system and by the Navy's contract administration organization (the counterpart of the Air Force's AFPRO). The completed missile would be disassembled under scrutiny and reinspected by John's team.

McGee told me that one of his crews had just completed the tear-down of an AIM 54-C, the latest version of the Phoenix, at the Hughes operation in Tucson. They had found thousands of deficiencies. "It was just junk," he said.

He had written a report on all this, but it was bottled up somewhere in the Navy department. The worst of it was that the AFPRO, acting on behalf of the Navy and with full knowledge of the Navy technical representative at Plant 44, was still accepting the Phoenix missiles being built for the Navy as if the tear-down had never happened. Could we, John wanted to know, get the information through to some top people?

That was where John's pressing problem and Tom's connection with Admiral White came together. Tom took a copy of John's report to White, who, without revealing that he had read it, requested a copy from his own organization. When this hit the fans in the Navy and Air Force procurement bureaucracies, the consternation was extreme. But nobody could see a way to deny the request of a four-star admiral.

White responded to the report decisively: as of June 22, 1984, the Navy would accept no more Phoenix missiles from Plant 44 until further notice. On September 10 Verne Orr wrote a memorandum to Secretary Weinberger noting the consequent events leading to a temporary shutdown at Air Force Plant 44:

Results of the Navy review prompted the Air Force to tear down a Maverick missile in early July and the Army followed with a similar inspection of the TOW missile (Phoenix, Maverick, and TOW were the principal products at Plant 44). The tear-down of the Maverick showed quality problems similar to the Phoenix missile. The Air Force stopped acceptance of the Maverick on August 3 and issued the 90-day cure notice which put Hughes on notice that their quality assurance program could be disapproved if satisfactory progress was not made.

We now had a plant-wide problem and each program had a common discrepancy -- poor workmanship caused by systemic operating problems. Hughes finally recognized this fact and, on August 9, they suspended final assembly of all three missiles ... so as to begin a major management push to correct their poor operating procedures and practices. As part of this action, they notified their suppliers to stop shipments until Hughes's management could review the quality of the items. Subsequent to Hughes stopping production, agreement among the three services led to suspending progress payments. After notice of intent on August 21, Hughes was advised by the administrative contracting officer on August 27 of the actual 100 percent suspension. Hughes has complained that the government action was inappropriate and would result in an unwarranted detriment to our national defense. I feel continued acceptance of poor quality products is more detrimental and cannot be tolerated.

A logical man reading this might conclude that the Attic Fanatics and their friends had been vindicated -- but Orr couldn't quite bring himself to say that. Politicians and bureaucrats are not notable for giving credit where it's due. Orr did write in his memo, "It is apparent that early signals from our reviews of the Hughes Tucson facility indicated that the company's manufacturing and quality assurance programs were suspect and that lack of aggressive follow-up by both Hughes' management and the Air Force Contract Management organization allowed the production and quality deficiencies to continue."

The scary part was that Hughes, though the worst of the lot we'd seen, was not alone. The "systemic operating problems" and "lack of aggressive follow-up by ... contract management organization" applied to many other shoddy giants in the defense contracting business.

At Orr's request I wrote another report summarizing our past recommendations. This resulted in a meeting with Orr, Harshman, and Tom Cooper, assistant secretary in charge of research and procurement.

The one problem we three subordinates -- Cooper, Harshman, and I -- agreed on most strongly was the AFPROs; we had to stop putting job-hunting colonels in charge of AFPRO detachments in the plants. It almost always happened that they went native and began to represent the contractor rather than the government. A good example was the plant representative who had obstructed our earlier efforts at Hughes, although, to be fair, he was under orders to do that. By this time he had retired from the Air Force and had moved down the hall to his new office as a Hughes executive. He was just one of many.

Orr said yes, it was unwise, but then in a plaintive voice asked, "I've got more than six thousand colonels; where can I put them?"

We made some strong recommendations for correction, but when the time for action came, Orr allowed himself to be shunted aside by the military who recommended -- of course, of course -- a blue-ribbon commission. I wrote to Verne to give him an idea of what we could expect from this august body. It would:

1. Change the subject by performing a worldwide "study" of truly cosmic problems, avoiding all particulars, most especially the specific problem that led to the blue-ribbon commission in the first place.

2. Buy time by taking as long as possible to perform the worldwide study. Other issues will arise that will command the attention of people previously concerned about the collapse of quality control at Hughes, and everybody will forget about it, permitting an early return to business as usual.

3. Ensure bland results by properly selecting the blue-ribbon commissioners. Make sure the chairman, at least, has a vested interest in preserving the status quo. Make sure that the majority of the other commissioners have similar conflicts of interest.

Air Force colonels do not become generals on the strength of a great sense of humor. AFSC Commander General Larry Skantze was furious at my little satire. At a blustery meeting with Verne Orr, my bosses, and me, he said he was outraged that I'd even suggest such things. He ended his remarks by promising that we'd have a "full report" on the Hughes debacle by December 1.

So far as I know, Skantze never delivered it. What he did do was appoint the former vice commander of the Air Force Systems Command retired Air Force Lieutenant General George Sylvester, to head the blue-ribbon commission. General Sylvester fitted neatly into point 3 of my memo. In his former position, he'd been the architect of the mess he was now supposed to look into. Nowadays he was a consultant to the acquisition community. The other commissioners were mostly ciphers, but not without conflicts of interest.

As for point 2, the commission took a very long time to do its thing, whatever that was. Actually, it was never clear when the commission finished its work. As people forgot the Hughes scandal, the commission just faded away. As for my point 1, many months later we got a clue to its performance when we saw a few skimpy Vu-Graph charts showing that the commission had toured the country having philosophical bull sessions with AFPROs and "experts." There was no evidence that it had ever faced the problem. Skantze's blue-ribbon troops had fulfilled my predictions to a T, but somehow he never got around to thanking me.

I kept itching to get back to quality control -- a field where I'd enjoyed some successes early in my career. The issue was a fascinating one. John McGee and others reported that Plant 44's quality had improved somewhat but that throughout the industry the DoD was still accepting products that did not meet contractual specifications. The services either lived with defective products, repaired them themselves, or gave the erring contractors profitable repair contracts to fix their own mistakes.

Surely, I thought, the military and I would have a common viewpoint on this. Even if they cared nothing about costs, they must be concerned about malfunctioning weapons and planes. But, I am sad to say, Admiral White was the only man we ever detected among the high brass who showed the kind of concern warranted by the quality problem.


One of Richard Carver's ways of trying to neutralize the Attic Fanatics was to appoint something called the "Private Sector Cost Management Group" (Private Sector Group, for short), which was made up of businessmen and professors and, especially, people he wanted to flatter. Carver's deputy, Eric Thorson, a political appointee, was a sort of general secretary and chaperon to this group as it traveled around the country listening to briefings by the contractor companies and military bureaucrats.

One day in 1986 Carver decided that I should take part in this by briefing the group on the cost and quality problems at Hughes pre-shutdown, that is, 1982-1984. I was to speak to them in Tucson on June 20 and provide a kind of "before" picture to contrast with the brilliant "after" picture that management and the Air Force would draw, according to the word I got from Eric Thorson.

I found, however, that the good news came first: the AFPRO briefers said there was a "basically positive trend." The Phoenix C missile (AIM 54-C) now showed up with an average of only four defects per hundred inspections, whereas in June 1985 the average had been thirteen and a half.

The AFPRO briefer described the tear-down procedure, now required for all programs, and said that an IIR Maverick guidance and control system torn down earlier in the year had disclosed only three minor defects. My own information was that the tear-down had been completed just a few days earlier and that over three hundred defects had been found. He went on to say that a Phoenix tear-down was in progress. I learned that evening from my sources that it had taken place about two weeks before and had turned up 2,578 defects, some of which could have caused mission failure. The AFPRO had been informed of this but wasn't telling.

I asked some questions. The AFPRO briefers looked fearful and responded evasively. After each question the Hughes executives present would whisper among themselves. Then I would back off and soften the challenge, and they would look relieved. I was determined to stay on my best behavior and learn all I could.

Next came the Hughes dog-and-pony show. It was easy to tell the Hughes briefers from the Air Force people: their Vu-graphs had more color and were generally better. And they were wearing much better suits.

They were full of equally good news. The first Hughes man said that Maverick production was being moved to the La Grange, Georgia, plant, with some of the work to be done in the Eufaula, Alabama, plant in Congressman Bill Dickinson's district. As he said that, the briefer looked intently at me as if to say, "So there!"

As for quality-control problems "beginning in June 1984," Hughes management had recognized them and had shut down the Tucson plant in August (no mention of our 1982, 1983, and 1984 warnings). "Now, we're doing very well," said the briefer, and declared that the Air Force had reported their defect rate the lowest -- by a factor of two -- of all plants the Air Force oversaw for contract management.

Ken Richardson of Hughes then said we'd probably hear something about the Navy's recent tear-down of a Phoenix C. A full report was expected within two weeks, but early findings showed that there were no final hardware problems, no new problems, and that the results overall were "rather good." Seventy-five percent of the defects had to do with solder joints. In 1982 we had found that Hughes's workers didn't know how to solder, and apparently they still didn't. The clincher was that Will Willoughby (the Navy's civilian quality control guru in Washington) and Admiral Wilkerson, commander of the Naval Air Systems Command, had said there was nothing to indicate trouble with Hughes's products. The AFPRO people present didn't comment on the Phoenix tear-down.

I skipped the scheduled social activities that evening to meet with John McGee and his ace tear-down supervisor, Fred Maloney. They produced documentary and photographic evidence to show that of the 2,578 Phoenix defects they had found, 106 were extremely serious -- even more serious because they had all turned up on a single guidance and control system.

Along with the systemic problems that we had been familiar with for years, there were some new ones in accounting for the configuration status, or design documentation, of the missile and in quality control by Hughes's suppliers. In fact, a legal inquiry was being made into reports that one supplier had deliberately shipped defective products.

In my briefing to the Private Sector Group and the AFPRO people, scheduled for eight to ten-thirty the next morning, I intended to stress the importance of giving top management timely notice of the truth, the whole truth, and nothing but the truth on weapons development and production. My case study was Hughes-Tucson: the evidence-of-trouble stage, which lasted from about May 1982 to May 1984; the facing-facts stage, from June to August 1984; and the follow-up stage, from September 1984 on.

I also intended to declare that a new cover-up was taking place. To support that, I'd asked the two Navy inspectors, McGee and Maloney, to come to the meeting with their Phoenix findings, including enlarged color photographs of some of the more significant defects.

Carver and his group were openly hostile to my message, but when John and Fred joined us, the hostility turned into fear and loathing. After a quick, whispered conference, Carver and Colonel Westover, the plant representative, ordered the inspectors out of the meeting room.

Eric Thorson and I followed them into the hall. Eric apologized profusely, handing them his card and saying he was available to help if they felt any repercussions from the incident.

When I returned to the meeting, the discussion soon degenerated into personal attacks on me. While our procurement community had been doing a great job, people like me had been putting out negative reports that hurt our image and hindered improvement. Then the group further degenerated into the standard Republican-businessman Congress-bashing.

Carver returned to my case with the assertion that I had accused General Skantze of being in "the contractors' hip pocket." When I denied saying that, Carver said that the charge showed up in my writing about the way the Troika had watered down the application guidance for work measurement.

Apparently maddened by such an indictment, one of the Private Sector Group, a very large and blustery type, threatened to attack me. He was an Ohio businessman named Sy Laughter, who remarked loudly, "If we weren't on government property, I'd grab you by the scruff of the neck and kick you out of here. I'd kick your ass good." His respect for United States property was a sentiment I found very touching. Since Sy was at least six inches taller and fifty pounds heavier than I, I tried to mollify him before I was asked to leave.

After I'd returned to my quarters, Colonel Westover came to try to smooth things over. After explaining that he wanted to "work the problems" at Plant 44 himself, he began to question me. He was especially curious about one thing. In the course of defending myself against the mob in the meeting room, I'd let slip something that John and Fred had told me: every single Phoenix 54-C missile was in storage because of defective target detection devices and fuses. The Navy had been willing to pay Hughes for them, but as for putting them in the fleet -- no thanks. Westover said this information was extremely "close hold." Of course it was.


Back in Washington I tried as usual to rock the boat toward corrective action. I told both Carver and Harshman that our office had a responsibility in the matter of the defective missiles. And again I predicted that both the Navy and AFPRO would get their whitewash buckets out. My recommendation was that we put back into effect my office's program called Quality Control and Cost Control at Point of Payment, which Carver had mothballed. Carver didn't remember the program. Harshman said he'd take it up with the acquisition people, which was like asking the usual suspects to help solve the crime.

Admiral Steve White, his job abolished by Secretary of the Navy John Lehman, was long gone. That left Will Willoughby as the Navy's quality expert. When I talked with him, he assured me that he had indeed given Hughes a clean bill of health. His message to the company was, "You're all right, keep going, get better."

How could he say that, I asked, in the face of the hard evidence -- photographic and documentary -- that his tear-down team had discovered?

Well, he could say that because the Phoenix C field results were good. The fleet had assured him that there were no operational problems with the missile.

Of course the fleet's not having problems, I said. The fleet doesn't have any Phoenix 54-Cs.

Not doing very well on these lines, Willoughby shifted to what he considered the main trouble: the quality inspection results being "blown out of proportion," the "irresponsible reporting by the press," "too many people reporting irresponsibly."

I noted that the recent Phoenix problems had not been in the press at all.

Well, there were his inspectors. He wanted them to have broad latitude to look at such things as soldering -- actually, he didn't think that was a real problem -- but if the adverse reports kept coming in, he'd have to put some restrictions on the inspectors. "If I have to cut them back, I will," said Willoughby.

As it turned out, the reports did keep coming, and McGee and the other Navy tear-down inspectors were ordered to stop counting defects. They could still look for defects and find them, but they had to be sorted into categories and only the categories reported.

But to go back to Poor Richard's plaintive message in 1986 that began this tale: everything he said was wrong. The Navy conducted the tear-down, not the Air Force. The Navy did, in fact, find "discrepancies" critical to the operation. Fitzgerald did not participate in the review. The tear-down did not produce a "horrer story," at least not then. And finally, "the industry" did not lose.

It did not lose what it ought to have lost -- its indifference to production blunders -- apparently because there were no powers in the Pentagon honest enough to find and use a big stick.


In the early months of 1985, the Pentagonal spenders had been taking a battering on Capitol Hill. Back home, the folks around the country were disturbed by all the news of procurement ripoffs and kept writing their congressmen. Maybe they didn't understand what a large, complicated thing like a Maverick missile should cost, but they knew about hammers and pliers. And it was perfectly clear in Keokuk that dog boarding, big parties at luxury resorts, and strolling musicians didn't do much to fend off the Evil Empire.

In The High Priests of Waste in 1972, I had predicted, "Once the great majority of exploited taxpayers understand that the Pentagon is far and away the biggest protector of welfare chiselers and law-and-order violators, some of the same, hot indignation that has settled upon the hapless welfare mothers will be directed against military waste."

By 1985 Grassley had prepared his case and was ready to apply the Freeze to the Pentagon budget. To be truthful, the Freeze was not much more than a sharp frost. It was being imposed on a very high budget that had almost doubled since Reagan took office, and it was stated in "constant dollars," meaning that the budget limit was allowed to rise with inflation. There was small danger of hypothermia in the Pentagon.

The story of the figures is interesting. The administration, foreseeing a freeze attempt, first put out the story that Weinberger had proposed a "rock bottom" budget of $334 billion for FY 1986, $40 billion above the previous year's budget (all figures in this passage refer to OMB's "Total National Defense" account, which includes substantial non-DoD sums). Then there were tales that Cap Weinberger had suffered savage slashes -- down to $324.8 billion before Reagan stepped in to protect the DoD.

The Senate rebels weren't hoodwinked, and Robert Dole knew it; Grassley staffers even said he was secretly sympathetic. Seeing that he was in for a fight, Dole, with the other Republican leaders, got the request down to $313.3 billion, which was about $10 billion more than the then-current budget.

In the climactic debate, reported in the May 2, 1985, Congressional Record, Grassley and his allies cited all the horror stories, from Fursten the executive dog to billion-dollar overruns. But meanwhile Grassley, Kolesnik, and company were doing what politicians do when they are really serious: dealing behind the scenes. They had already persuaded Dole to schedule the debate while Reagan was on his trip to the Nazi war cemetery in Bitburg, West Germany.

After a motion by Senator Goldwater to table had been defeated, Dole laughed and said, according to a reliable witness, "It's now five minutes after midnight in Bitburg, too late to place a call and have him come over." (The Congressional Record showed Dole saying Bonn, not Bitburg, but I like my witness's version. He said the Record was revised before it was printed.) With Reagan sound asleep in the Federal Republic, the Senate invoked the Freeze by voice vote.


The aftermath for me was another retaliation attempt by Richard Carver. To make a complicated story simple, he used my evaluation report in an attempt to get rid of me. His rating can be summarized as "Does not work and play well with others." That was so outrageous that Dingell came to the rescue with an investigation, and Orr was forced to overrule Carver.

Despite such unpleasant diversions, the Dingell detail was becoming very productive. We were completing a successful investigation of the procurement practices that were used to justify the enormously expensive "support equipment," which meant ordinary tools for the most part. Chuck Woerhle had uncovered some of this two years earlier, and Senator Roth had publicized the matter, but they had run into a stout Pentagon stone wall.

Dingell was not so easily put off. Because his oversight responsibilities included the accounting practices of publicly traded companies, his subcommittee was interested in that old fantasy, equal allocation of overhead. Colin Parfitt and I told them, first, it had never existed, and second, even its ghost was thoroughly discredited. But the members wanted to prove that for themselves. In the end this turned into one of the most enlightening investigations I'd ever worked on. The GAO was helping us, too, and after an unproductive start, they finally did an excellent job.

On September 19, 1985, Dingell wrote Caspar Weinberger a letter with a list of charges too lengthy to repeat here, but the general charge was "fraudulent intent" on the part of contractors. Taking up the "equal allocation" question, Dingell said:

It is important for you to understand that the GAO debunked a phony idea widely spread by some Air Force generals that the $435 hammer is a result of the "equal allocation of overhead" to these parts which are of minimum intrinsic value. The 12-cent Allen wrench did not increase to $9,606 by the "equal allocation of overhead" -- General Dynamics and Westinghouse actually charged engineering time to the wrench that resulted in that kind of price. According to an examination of the labor records, Westinghouse charged 63 hours of engineering time to develop a 3-inch piece of common wire for $14,835 -- a tool officially dubbed an assembly pin -- when Westinghouse had been using a wooden peg for five years for the same purpose.

In short, it took seven engineers a total of sixty-three hours to design a straight, three-inch piece of wire. No, there is nothing arcane about its composition or function -- it's just plain wire. Their engineering design drawing is reproduced on page 212.

Spare parts -- the actual pieces of engines, missiles, or planes -- were priced by formula, and illustrated the degree of overpricing of the big stuff. Tools, on the other hand, were priced individually and separately after long negotiation. The tool-buying process, then, offered a good chance to understand just how Pentagon procurement rules work, because tools are bought in the same way as the big stuff.

Engineering design drawing for the Westinghouse assembly pin.

One of the best-documented examples is a piece of F-16 support equipment called a pulley puller, which cost $8,832 (see the photo and cost chronology on page 214). Many readers will recognize that such a tool, used to remove wheels, pulleys, gears, and so on, can be bought commercially for about five to fifteen dollars. If you were to buy one, you would most likely find that it had two longitudinal slots in place of the two outer holes shown on the F-16 model. In addition, the commercial model would have a selection of sizes of the two outer machine screws or bolts to be screwed into the part to be pulled off. The body of the puller would also have slots for the outer screws to accommodate varying distances between holes in different pulleys. In short, your hardware-store pulley puller would be much more versatile than the F-16 tool, which accepts only one size of machine screw.

If, instead of buying a pulley puller, you decided to make one, you'd take a steel bar of approximately the correct cross-section, cut it to the right length, drill the three holes, tap the center hole to accept a threaded jack screw, and buy two machine screws and a jack screw. Presto!

As a test we decided to have a pulley puller custom made, so Tom Amlie called Jon Williams, owner of a first-rate aerospace machine shop near Dallas, on a Friday afternoon with an "emergency" order. The pulley puller shown on page 214 arrived from Dallas at Tom's home in Bethesda, Maryland, on Sunday morning, less than forty-eight hours after the order was placed. Its corners were neatly chamfered, the whole assembly had an attractive, gold-colored protective finish, and it worked perfectly.

Jon had given the order to his foreman on Friday and was given the finished product thirty-six minutes later. Picked up at the shop, the tool would have cost $25. On this emergency basis, the total cost, including profit and air express charges, was $69.

Compare this with the Air Force record. The Air Force placed its order on September 21, 1982, nine days before the end of the fiscal year, when funds had to be obligated before they expired. It then waited seventeen months for delivery and paid $8,832 for the item. Then the Air Force found out that its pulley pullers didn't even work!

This was bad, but even worse was that this "price justification" meant that the Air Force might pay the same $8,832 apiece, or more, for any reorder. Since the F-16 tool was a "unique design" it was probably claimed to be "proprietary," so we would have to buy it from Westinghouse through negotiation rather than get competitive bids. There would probably be some inflation between the time of the original purchase and the reorder, and the Air Force buyers would raise the price to account for that. And what about the cost of redesigning the pulley puller to make it work? Would the next shipment cost $10,000 apiece? $15,000?

Chronology of the General Dynamics pulley puller.

SERD 74966. the F-I6 pulley puller.

Pulley puller custom made by Ton Williams's machine shop.

The important point is that the pulley puller transaction was perfectly regular. When the participants were questioned about it, they were outraged. They had meticulously followed all the procurement rules, hadn't they? In appearance before the Dingell subcommittee on September 23, 1985, General Dynamics Vice President Frederick Wood, a former Air Force procurement officer, stoutly defended the deal.

He displayed a huge flow chart depicting sixty-five steps designed to give the tool a proper pedigree and make sure it worked as intended. The fact that it didn't work was not important -- it had been certified. General Dynamics had a signed compatibility test report, witnessed by three contractor experts and a government representative, certifying that the item was "suitable for the purpose intended." Not functional, just suitable.

The big price tag didn't bother Frederick Wood, either. He explained that his duty was to observe the rules and follow the set procedures. The price was just a natural outcome of that. Here is an exchange from the subcommittee hearing:

MR. DINGELL: Do you have a duty to see to it that these things are done in the most cost-effective fashion?

MR. WOOD: I would have to say no, then. I would like to explain why, then.

MR. DINGELL: When you tell us you don't have a duty to do it in the most cost-effective fashion, I think you not only have the right, but the duty to explain why you make that statement.

MR. WOOD: I think it is incumbent upon all of us to develop a process that would result in the most cost-effective way of doing business. In many ways, the processes we use in any part of the government are not specifically designed to be the most cost-effective.

Air Force Brigadier General Ronald Yates, the F-16 systems program director when the pulley puller was bought, was even more hard-nosed on the defensive. He didn't at all like Secretary Orr's request for a refund from the company after the ripoff had become embarrassing. When the GAO interviewed him on February 26, 1985, Yates said that he couldn't see anything in the data to support a refund request. Questioned further on this by Congressman Gerry Sikorski on September 23, 1985, General Yates said, "The straightforward answer is that in fact they spent the cost incurred. We knew that."

Now recall that the Pentagon rule is that the specific negotiated price should be close to what it actually costs the contractor to make or buy the item plus a percentage of the cost as profit. That was the basis of Yates's defense. But the Air Force waited until March 19, 1984, more than three weeks after the pulley pullers had been delivered, to negotiate the $8,832 price. This gave them good "actuals" -- costs that could then be audited by the Air Force and the DCAA. The chart reflects the zany way the final figure was arrived at.

First General Dynamics and Westinghouse proposed a price of $9,007 each for the pulley pullers. Our astute Pentagon negotiators were not to be fooled that easily, though. They knew that the actuals, as audited by the Air Force and the DCAA, came to $5,384. Now entered a mysterious figure: $246 to "finish" each pulley puller. Finish what? The defective tools had already been delivered. The Air Force had approved them, so Westinghouse hadn't the least intention of altering them to make them usable.

Then came the previously approved markups for G & A (general and administrative expenses), the cost of money (interest), and profit. The total was now a "fair and reasonable" cost to Westinghouse of $7,009 for each little gadget. For the frosting, General Dynamics got $789 per item just for dealing with its own subcontractor plus a profit of $1,034 for each item.

At this point some inquisitive busybody might ask who really made the things in the first place, and where? The answer was not General Dynamics, and not Westinghouse, but a subcontractor machine shop. Possibly because it is harder to find a machine shop to make defective pulley pullers than one that turns out something usable, the machine shop charged the rather high price of $353. That charge is hidden under the misleading accounting label "material."

Was General Yates fazed by any of this information? Not at all. He told GAO that if the Air Force had walked down to the corner hardware store and bought x number of pulley pullers off the shelf for $25, they would not have saved any money. That was because the related engineering and testing costs now on the bill would be shifted to a "sustaining engineering" charge that the Air Force would eventually pay for anyway.

This is one of the wonderful effects of the "full absorption accounting principle," which allows favored big contractors to take all allowable costs of doing business and distribute them willy-nilly onto all the work going through their plants.

When the GAO audited the General Dynamics refund ordered by Verne Orr, they found that the company had recorded a separate 359 engineering hours for the Westinghouse support-tool work but had excluded them from the final price proposal. Nevertheless, those hours "are used as a basis for progress payments by the Air Force on the F-16 contracts.... Therefore, the Air Force could end up paying the cost for these hours even though they were excluded from the proposed and negotiated price." (As the cost breakdown chart shows, General Dynamics charged $33.61 per engineering hour. That meant an additional hidden charge of $12,065.)

The GAO's breakdown of the Westinghouse pulley-puller price a buildup.

What if the Air Force simply made such tools in its own shops? The GAO reported: "Four items were locally manufactured by the Air Force and the SPO (Systems Program Office) was billed $995 for these items. In contrast, General Dynamics had proposed a total price of $41,514 for the items, or a difference of $40,515."


Having produced this eloquent illustration of how the procurement system works as to support equipment, the Dingell staff decided to go back to the spare parts conundrum, especially to the important point that each expensive part fits into a proportionately expensive whole. Stockton preferred not to use our former examples; he wanted something new and exciting.

On a Sunday afternoon late in 1985, he called me and asked, "What do you think about a $317 piss pan?" He explained that this item, properly called a toilet pan, looked something like an oversize fiberglass cafeteria tray, about twenty-nine inches long and two and a quarter inches deep. It slid under the toilet of the C-5A transport plane to catch any splash or overflow.

Reluctant though I was to have anything more to do with the C-5 turkey, I finally agreed to visit the Air Force repair depot at San Antonio with the Dingell investigators. There we found the generals and their assistants rather proud of their toilet pan -- at least proud of the fact that it now cost only $286.75. They had pushed Lockheed down from the $317 demanded, they said. This time, the Air Force people had made their own estimate of what Lockheed would spend on manufacturing the pan. But we saw a flaw in the usual stack-up of costs. The cost subdivisions, or "cost elements," in the Air Force estimate were radically different from those in the Lockheed estimates I had seen.

Under questioning, the Air Force analysts admitted that they had made up the numbers. After estimating that it would take 1.92 standard hours to manufacture each article, and adding the cost of material, they had simply plugged in some finagle factors to make their estimate approximate Lockheed's cost. Nobody at the depot could see anything wrong with that.

We decided to move on to the next toilet pan stop, Air Force Plant 6, at Marietta, Georgia, where Lockheed assembled C-5s. First we had to sit through the tribal ceremony of the boiler-plate briefings. I recognized one of the briefers as an old acquaintance, Reginald Andrews, a senior, influential civilian in the AFPRO. We'd been friendly long ago, but his bosses had so condemned my C-5A activities that I'd assumed that Reg, while knowing the reality, had kept quiet in order to hold onto his job.

Now an amazing thing happened. Right in the middle of his boilerplate briefing, Reg Andrews began telling the truth. In some detail he told us how Lockheed was ripping off the Air Force once again on C-5B prices. He spoke of his own efforts to inject some sanity into the process, principally his effort to see that Lockheed didn't build projected C-5B prices on top of cost figures that were higher than the actually expected costs. He said there was good evidence that they had made the phony boost on wages and salaries. He said the Air Force audits would prove it if we could only get a look at them.

Hearing this, the Air Force military were in disarray. Colonel Looney, the plant representative, tried hard to change the subject. Reg resisted, and so did we. In the confusion we managed to get hold of Lockheed's actual estimate sheets for the toilet pan. The company's first try added the cost of factory inefficiency in the conversion of standard hours to "actuals." With the usual markups, the price for each pan was $642.35.

But that price had some problems. Herblock's Washington Post cartoons had shown Caspar Weinberger with a $640 toilet seat (an earlier horror story) around his neck, an image that had made the DoD acquisition community very sensitive about anything having to do with toilets. In deference, Lockheed had reduced the tag to a "policy price" of $325. The Air Force penny pinchers had then reduced the price to the $317 "last price," and finally to the "better estimate" of $286.75.

The C-5A toilet pan.

We had all the information we needed. After making adjustments for errors and omissions by the San Antonio estimators in standard-hour content, I estimated that Lockheed had originally foreseen spending just over $300 per standard hour of output to manufacture the toilet pans.

This corresponded to about $275 per standard hour of output for the manufacture of the whole C-5B under the current contract, as estimated by the AFPRO engineers. (One of the engineers told me privately that I should add $10 or $15 per hour to that figure for costs that had been left out.) Close enough, Stockton and I decided. We might be able to stimulate some cost reduction with the notion that the cost of the C-5B was parallel to the cost of a collection of $600 toilet pans in flight.

Even though only one group of twenty-one aircraft out of the total planned purchase of fifty C-5Bs remained to be negotiated, we had to persuade the Air Force procurement people to do a should-cost study, which they started reluctantly. But first we had to break through the resistance of the Air Force auditor general, who didn't want us to see the reports Reg Andrews had referred to. Then, when it seemed that this study was headed in the usual direction -- toward "finding no evidence" of fat -- I decided to step in. Should-cost and other estimates were part of my jurisdiction, so I wanted to keep the verdict honest.

In July 1986, when I visited Air Force Plant 6, however, the information I wanted was denied me. It seemed that the Air Force generals had negotiated a back-room agreement with Richard Carver that "should-cost findings cannot be released until an ASD (Aeronautical Systems Division) position is determined and negotiations are complete or the FY 87 (last) option is exercised." In English that reads: after we get this thing wrapped up and signed, we'll let Fitzgerald get a look at it.

On the strength of some in-house Air Force encouragement about saving a few bucks on the despised C-5B, I'd taken on the should-cost matter by myself. Now I had to pay the price and confess failure to Stockton and Dingell's staff. It was worth eating a little crow, however, because they then managed to cut a peephole in the Blue Curtain, and I had a look at the should-cost team's results. They were nearly worthless, and I had to say as much in my critique. We also learned that even though I, the Air Force official legally in charge of such matters, had been denied information, Lockheed had been fully briefed on the team's findings.

On September 17 we had another of those clamorous debates, this time in a Lockheed auditorium, where I was confronted with dozens of Air Force officers, Air Force civilians, and expensive consultants trying to defend their fruitless results against my critique.

Fortunately for me, John Lynskey, the Air Force deputy chief of pricing (the top civilian in that capacity) was present. He later made an accurate record of my critique and wrote a report that essentially agreed with my findings. Even more fortunately, a draft copy of that report fell into the hands of the Dingell subcommittee before any general could censor it.

The result was that Secretary Richard Carver was now in a vise, one jaw being the Lynskey report and the other being a new discovery by Stockton that Carver was on the payroll of the big investment house of Smith, Barney ("They make money the old-fashioned way") while serving as Air Force assistant secretary for financial management. Being paid by the investment house and having access to much inside information -- especially as to where "black," or supersecret, contract money was to be spent -- Carver represented a potential scandal. Because Dingell had jurisdiction over SEC matters, this question was of concern to him.

Carver was asked to come to the Dingell staff office to explain his situation to Stockton, Mike Barrett, and others. The report to Dingell of this meeting reads:

On Thursday, October 2, 1986, the subcommittee staff interviewed Air Force Assistant Secretary Richard E. Carver in connection with his ongoing consulting relationship with Smith, Barney. The staff's inquiry into possible conflicts of interest with respect to Mr. Carver's Smith, Barney relationship is ongoing and will be the subject of another memorandum. However, during the interview, Mr. Carver said he wanted to bring us up to date on the fiscal year 1987 C-5B procurement...

Mr. Carver led us to believe that the Air Force might just be on the right track to recouping for the government up to $1 billion in overpricing on the C-5B aircraft. He was full of praise for the subcommittee's work, as well as for the work of his Management Systems Deputy, A. E. Fitzgerald, in focusing the spotlight on this potential waste of money. In contrast, he was highly critical of the "deficient should cost study" recently completed by General Skantze's Air Force Systems Command (AFSC).

Mr. Carver said that before the Air Force opens negotiations with Lockheed on the fiscal year 1987 C-5B -- when, according to him, everything including Lockheed's return on investment and DCAA's defective pricing findings would have to be put on the table -- a new "should cost" study would have to be done by someone competent to do such an analysis.... Throughout this discussion, we were led to believe that Mr. Fitzgerald would be in charge of the new "should cost" study.

This was a nice example of the soft answer that turneth away wrath -- or so they hoped. Neither Carver nor Pete Aldridge, now secretary of the Air Force, had the slightest intention of letting me have a close look at one of their most favored contractors. The next day Carver announced that Eric Thorson would be in charge of the new study. This did not please Dingell's staff:

From our conversations with Mr. Thorson, it is clear that he has little, if any, experience in such matters, while Mr. Fitzgerald and his associates developed the "should cost" approach in the early 1960's. Furthermore . .. the Air Force's legal agreement with Mr. Fitzgerald specifies he is responsible "at the highest Air Force level" for such studies. Apparently Messrs. Carver and Aldridge simply ignored their legal agreement.

I was permitted to participate in the work under Thorson's supervision, and luckily Eric was a very decent person, and his military assistant, Colonel Jim George, was a highly intelligent and well-motivated officer. We also had some closet patriots on the should-cost team, as well as the powerful backing of Reg Andrews.

Dingell was a great help, too. He brought the toilet pan controversy all the way to the desk of Larry Kitchens, Lockheed's chairman of the board. Haunted by that expensive piece of cheap plastic, Kitchens finally told Dingell he would reduce the price to one dollar if that would satisfy him.

It didn't satisfy me. I used the picture of the toilet pan as a prop in numerous television and newspaper interviews to hammer home the connection between overpriced spare parts and overpriced airplanes.

Finally the ASD team had to swallow their pride and ask Reg Andrews to help them in their renegotiations with Lockheed. In the end, though we didn't get nearly what we should have, the hard work and pressure paid off. The new option price was $1.947 billion, $498 million lower than the previous price. After adjusting for savings they might have had without the should-cost study, the Air Force announced, a saving of $273 million.

They had good reason for announcing the lower figure; both Dingell and Proxmire were determined that the savings be returned to the Treasury and not dissipated elsewhere. Even though Lockheed did not return any money on the previous options and managed to keep a lot of fat in the last one, the effort was still worthwhile.

That was the short-term benefit. The long-term benefit of our educational effort was that the high brass could now see very plainly the whole disastrous array of factory inefficiency, excessive rates of pay, specious "engineering" costs, insane overhead charges, and so on. The moral was that we should cut Pentagon unit acquisition prices drastically.

We had done everything we could to educate our leaders, but the question remained: were they educable?
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

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13. The Poindexter-Packard Coup

By 1985, THE GUERRILLA MOVEMENT in Congress aimed at exposing the excesses of the military spending machine and trying to curb them was in full swing. The Pentagon quickly understood the present danger and wheeled up its big battalions for the attack. Ronald Reagan denounced the "incessant drumbeat of negativism" he heard coming from Capitol Hill and the press. The Air Force drafted new plans to interdict information. FBI agent Cavanaugh's testimony had been blocked. So had mine. But the Hill tribes were still restless.

Senator Charles Grassley of Iowa, the chief of the congressional mujaheddin, wanted to freeze the budget. He was one of the few public figures who had ever understood our message that the spare parts horrors reflected similar overpricing on the big stuff. In other words, he fully recognized that military airplanes, for instance, were collections of vastly overpriced spare parts flying in close formation.

On the other side of the aisle, Senator Proxmire and Richard Kaufman continued to pursue information developed at their 1984 hearings at which Amlie, Parfitt, and I had testified, much to the disgust of the Air Force General Counsel, who threatened us with the possibility of criminal prosecution if we revealed big contractors' excessive costs.

The Capitol Hill Military Reform Caucus, which included Senators David Pryor, Charles Grassley, and Nancy Kassebaum, and representatives Denny Smith, Mel Levine, Charles Bennett, and Barbara Boxer was also harassing the reckless spenders in the Pentagon. A true coalition from left to right, the Reform Caucus had fastened on the ultimate defense problem: the Reagan two trillion-dollar spend-up was producing very little in the way of better or better-equipped armed forces. The Pentagonists particularly hated Barbara Boxer because she had shamed them by exhibiting the $7,662 C-5A coffeepot, her symbol of contractor greed and Pentagon profligacy.

John Dingell, a member of the "College of Cardinals" -- the committee chairmen who run the show in the House -- had also joined the rebels. His exposure of the General Dynamics and Pratt and Whitney scandals in the first few months of 1985 had profoundly changed the politics of questioning Pentagon procurement spending. To the dismay of the old-line congressional establishment, Dingell seemed to have invaded the jurisdiction of the House Armed Services Committee, which had always been the cheerful rich uncle of the military spenders. No more blank checks, Dingell seemed to be saying.

It was time for the Pentagon to mobilize and put down the Hill tribes. The evil rumors of waste and corruption must be buried. How does one handle such a problem? If one is Caspar Weinberger, one first sets up something with a sweetness-and-light name like "Defense Council on Integrity and Management Improvement." To avoid the danger that the group might be influenced by its own name, one appoints a reliable undersecretary of defense like William Howard Taft IV to head it.

But someone like Representative Timothy Wirth always gets the idea wrong and wants to set up a new version of the World War II Truman Commission. Truman described that painful experience, which occurred during his vice presidency, to Merle Miller, his biographer:

Down at Curtiss-Wright at the airplane plant in Ohio, they were putting defective motors in the planes, and the generals couldn't seem to find anything wrong. So we went down, myself and a couple other senators, and we condemned more than four or five hundred of those engines. And I sent a couple of generals who'd been approving, who'd okayed those engines, to Leavenworth, and I believe they are still there. I certainly hope so.

That specter still haunted the Pentagon. Especially when Wirth's idea for a congressionally directed blue-ribbon commission began to gather support.

Representative Bill Dickinson, ranking Republican on the Armed Services Committee and Reagan's point man on military matters in the House, was worried. The Reaganites were protecting Pentagon waste, but he had supported me, and I was attacking waste, Apparently Dickinson, trying to work out a compromise between the ideas of the Taft figleaf council and the Truman junkyard-dog committee, urged Reagan to appoint his own blue-ribbon commission. He and the other kingpins on the Armed Services Committee might have been content with the Defense Council on Blah Blah if they hadn't viewed Taft as such a dumbbell. Taft had shown no talent at either substantive reforms or convincing cosmetic actions. Recall that it was Taft who announced that he had cured the spare parts cost horrors by abolishing "equal allocation of overhead" -- a method of accounting that had never existed.

Dickinson and his allies got the ball rolling on Reagan's blue-ribbon commission when Robert McFarlane, then head of the National Security Council staff, met with the president and agreed on a "bipartisan" membership. If one happened to be named Caspar Weinberger, one's reactions to this were deeply mixed. The Washington Post, on June 8, 1985, commented:

The Pentagon issued a statement yesterday saying that Weinberger "fully supports the concept of a presidential commission."

But senior Pentagon officials said Weinberger privately opposes the plan, feeling that it is criticism of his stewardship. He indicated his position by encouraging Deputy Defense Secretary William Howard Taft IV to hold a meeting of top Pentagon officials to work out procurement reforms. Weinberger scribbled a note in the margin of a memo from Taft that the meeting might be a "preemptive strike," according to one official.

The President's Blue-Ribbon Commission on Defense Management was established formally on July 15, 1985, by Executive Order 12526. The order immediately accomplished the first two objectives of any blue-ribbon commission: it bought time, by giving the commission nearly a year to work, and it changed the subject, by not mentioning any of the Pentagon bad smells, from overpriced spare parts and weapons systems to defective armament.

The message was clear to anybody who had ever padded a contract cost. It was also clear to Aviation Week and Space Technology, which reported on July 22, 1985, that "President Reagan created the commission in response to Congressional concerns that negative publicity about military procurement had produced a surplus of reactive, uncoordinated attempts at reform" (emphasis added).

Next came the choice of commission members. By time-honored rule, the majority had to be people strongly biased in favor of the establishment under examination and, furthermore, tainted by gross conflicts of interest. The members chosen by the administration passed this test with flying colors.

In naming David Packard as chairman, the administration couldn't have found a man better equipped with massive conflicts of interest. This multimillionaire industrialist, chairman of the board of Hewlett-Packard, a big defense contractor and a supplier to even bigger contractors, was also a member of Boeing's board of directors. And, as Nixon's deputy secretary of defense, he had managed the billion-dollar Lockheed bailout after the C-5A disaster. (Lockheed, of course, was a customer of Hewlett-Packard.) Packard held such a favored position that he wasn't required to divest himself of his stock in companies that had government contracts.

At the time of the Lockheed affair, the terms of the deal -- and Packard's role in it -- were not fully understood. Packard managed to make Congress and the press think he was going along quite reluctantly with the government loan guarantee. Behind the scenes, however, he was contriving to give Lockheed over a billion dollars more than the company had coming under the most permissive interpretation of their contracts. In addition, he let Lockheed off the hook when the C-5A transport failed to meet technical requirements. That, in turn, paved the way for another Lockheed bailout of $1.5 billion when the company had to make good its blunders in designing and manufacturing the plane's wings. Because of a media blackout at the time, the only near-contemporaneous account of how all this came about appeared in The High Priests of Waste. Apparently that fiscal atrocity was just too awful for the taxpayers to contemplate, so the big-time news people didn't cover it.

At the Pentagon Packard had greatly reduced civilian control over the military contracting community by putting "good" military officers in charge and "letting them alone." By the end of his tour, I had a much more accurate view of David Packard. He detested auditors almost as much as whistle blowers. As head of Hewlett-Packard in the 1960s, Packard had refused to allow the General Accounting Office to audit records of his company's negotiated contracts with the Pentagon. The GAO took the case to court and won, and won again on appeal. That victory may have had a bit to do with Congressman Chet Holifield's drive to halt the GAO from making direct audits of defense contractors, a drive that resulted in the neutering of the congressional watchdog.

The GAO's defense auditing role was then assigned to the Pentagon's Defense Contract Audit Agency, but as soon as Packard became deputy secretary, he set out to geld the DCAA as well. On October 9, 1970, he directed a memo on the defense contract auditor's role to the comptroller and to the Pentagon's chief buyer, both assistant secretaries. The memo said, "We should avoid actions by auditors in their advisory capacity which appear to dispute or question specific decisions of contracting officers." And, just to make sure that no bothersome questions about improper contracting got out, he added, "The escalation of possible disputes relative to specific decisions should be avoided."

When David Packard's appointment was being confirmed by the Senate in 1970, Senator Albert Gore, Sr., argued that Packard couldn't avoid conflict of interest by placing his stock in trust. Gore said:

What of the economic impact on the value of electronics stock five, ten, fifteen, or twenty years from now, if the Department of Defense, the President, and Congress decide, upon the recommendation of the Department of Defense, to launch upon a multibillion dollar deployment of antiballistic missiles? And what of the conflict of interest involved in the possible loss of value of the stock in case a decision is made to reduce the level of weaponry, and not to deploy ballistic missiles, but to decide upon a program of disarmament?

Packard himself has been quoted as saying, "I have an almost impossible conflict of interest." It didn't bother him much, however.

He very boldly attacked would-be military reformers and cost cutters, of whom I was one of the worst in his eyes. Packard's chance to denounce me publicly came when he reviewed The High Priests of Waste in the October 23, 1972, issue of Business Week.

What excited Packard most was my suggestion that the military budget should be cut to the point that people would have to make a practice of good stewardship. What was Packard's answer? More generals, fewer cost experts. He wrote:

With few exceptions, the military services have not assigned well-trained, competent officers to manage important programs.

Instead, a whole host of "experts" like Fitzgerald had been brought in to tell inexperienced managers how to manage these programs. ... I felt no need for his (Fitzgerald's) kind of expertise.

Then Packard blamed me for various management schemes, such as CWAS and "total package" contracts, that I had denounced in every possible way. When I read that, my head swam. Here was a man who, without careful editing, might accuse Hitler of being a pacifist or Yassir Arafat of being a nice guy. He saved his hardest rabbit punch for my budget-cutting proposal. He wrote, "This would, no doubt, please the doves in America and the hawks in Moscow and Peking."

The diatribe returned to Packard's familiar theme: "Get rid of all the Monday morning quarterbacks like Fitzgerald.... Put officers ... in charge" (my emphasis). And, further, let's have no more annoying schemes like should-cost measurement for reducing contract expense.

As I noted in Chapter 7, Packard was one of the hardy band of big spenders that called themselves the Committee on the Present Danger (CPD). Some of his co-conspirators were such Establishment figures as James Schlesinger, William Casey, John Lehman, Jeane Kirkpatrick, Max Kampelman, Paul Nitze, Richard Allen, Lane Kirkland, William R. VanCleve, and, most important of all, Ronald Reagan. As cochairman of the CPD and one of its most generous financial backers, Packard exerted a weighty influence.

In all, sixty of these present-danger watchers were appointed to high jobs in the Reagan administration, dominating arms control matters and the national security apparatus. The CPD was not shy about making this public, as its book, Alerting America, stated: "The Committee on the Present Danger has taken control of American national security policy."

Nor was the CPD reticent about military acquisition policy. According to the book, "We want prices and wages in the defense sectors to rise relative to prices and wages elsewhere enough to attract the labor and capital needed for the defense effort" (emphasis in original).

Thus, through David Packard and others, the philosophy of the CPD was transferred directly to the Packard blue-ribbon commission. What elaborate rituals of deception we go through in the government of the United States. The executive branch had, in effect, set up a commission to investigate an organization, the Pentagon, that was its identical twin in outlook and had an almost interchangeable membership.

The commission staff also arrived with conflict-of-interest luggage. Air Force Colonel James Lindenfelser, a competent technical man, was best known for his public defense of the $7,622 coffee pot. Rhett B. Dawson had been chief of staff for Senator John Tower, chairman of the Senate Armed Services Committee. One senior consultant was Vincent Puritano, formerly one of Weinberger's assistant secretaries, whose notable effort in office was putting down George Spanton. Defense industry consultant Jacques Gansler, former CIA flack Captain Herbert E. Hetu, USN, retired -- and so the list went, thoroughly Old Boys in this Old Boy network.

Any able bureaucrat-manipulator worth his invitation to the Inaugural Ball knows the blue- ribbon commission tactics. You have some show-biz public hearings for the media and you do your real business behind closed doors. For the sake of the media, you invite some of the critics to testify in public; but in secret sessions, forget it.

In early December 1985, David Berteau, the commission's executive secretary, talked with me about giving testimony. In the days when Dave had been an assistant to Vince Puritano, he had seemed sympathetic to our cause. I'd always considered him a straightforward man, and he hadn't changed: he said quite frankly that the open hearings were for "public show" only.

I asked him how the commission was going to get around the "Sunshine Law," which required that all hearings be public unless they concerned genuine national security matters.

He said that the DoD was "executive agent" for the commission and could grant Packard the right to secret sessions whenever he asked. He added that Packard had had a long session about this with General Larry Skantze, chief of the Air Force Systems Command and number-one opponent of the more-bang-for-the-buck underground.

As for my own testimony, Dave was perfectly candid: some of the commission members were interested in hearing me, but what I had to say would have no influence whatever on the commission. The same would be true of any other dissidents.

At this point, the president sent his military budget to Capitol Hill, where it was declared dead on arrival. Clearly the administration couldn't wait until June, when the Packard Commission report would create a diversion. The natives had ambushed the Pentagon machine and were definitely restless: reform legislation had been introduced in both houses.

The administration cleverly initiated a PR blitz by planting reports of an internal battle within the Packard Commission and leaking a few interesting documents to media people who wouldn't ask too many questions. Commission member James Woolsey, so ran the tale, had drafted a rogue report that was "contentious" and "highly unflattering" to Pentagon management, and the other members were sharply divided over it. The only trouble with this story was that Woolsey was an old-line Pentagon team player and a staunch member of the big-spender club.

Those reporters who were considered too nearsighted to recognize a trial balloon when they saw one -- or too innocent to shoot it down if they did -- got copies of the hundred- page Woolsey report. They dutifully filed stories but, by significant coincidence, the stories did not detail Woolsey's actual findings or recommendations.

The counterpuff was not long in coming. David Packard began to confide in the Defense Department critics, telling them that in his heart he was really in favor of their tough line but that political considerations kept him from saying it in public. He assured them they would have his behind-the-scenes support.

It was time to throw Ronald Reagan into the mock battle. On February 10, 1986, he again charged the drummers, saying that the American Taxpayer had heard "a constant drumbeat of propaganda about defense scandals and defense spending and all that is wasted." The Packard Commission was going to be the only answer "in the face of this propaganda."

Uh-oh, David Packard whispered to the media, in the face of Reagan's statement, he couldn't possibly come up with a really tough report. The president would be bound to reject it. Instead, Packard produced an "interim report," a flimsy affair of twenty-six nominal pages. (A final report appeared months later.) One full page listed the commission members, another page listed staff members, pages four, twenty-two, and twenty-six were blank, page twenty-five carried an eight-line conclusion that said nothing. The remaining twenty pages covered the subject of procurement so superficially that they were hard to take seriously. The dubious substance of the report was that Packard was in favor of "contractor self-governance," to be effected by asking contractors to "implement internal controls" over their business ethics. The Department of Defense was encouraged to "vigorously administer current ethics regulations."

Packard was especially worried that somebody might be prejudiced against contractors with a bad record; in Pentagonese, he wanted to limit suspension and debarment to unethical "ongoing conduct." He didn't want them held responsible for their past sins, just for crimes in progress. It was like arguing that crooks should be punished only while they were actually stealing, mugging, or raping.

Our defenses against collusive fraud -- bribes, kickbacks, overbuying and overpricing, "material shrinkages," and the like -- were already woefully weak. Now the big spenders, undaunted by known defalcations and those lurking just beneath the surface, were proposing to strip away most of the remaining safeguards.

The Packard interim report may have looked like a joke and read like a joke, but the laugh was very brief. Soon there were signs that business and the Establishment press were going to give it a lot of weight. A number of our reporter friends had been telling us for some time that it was becoming ever harder to sell their bosses stories critical of the Pentagon. After all, most of the news media lords were part of the business establishment and shared their brethren's distaste for our populist uprising. Most establishment figures seemed tired of the drumbeat of negativism, tired of hearing stories about simple spare parts that cost as much as if Tiffany's had made them out of platinum, tired of tales about costly military hardware that didn't work, and, most of all, tired of taxpayers in a state of shock. It was all very bad for business. They seized on the Packard report as an opportunity to declare a victory.

The House Armed Services Committee scheduled hearings on the report for March 5, 1986. To prepare the way, the Pentagon machine laid down a rolling barrage of flackery. Weinberger appeared on CBS's "Face the Nation" on March 2 and gave a perfect rendition of a high official forced to accept the "tough" Packard recommendations. Drama critics would have given him excellent reviews. On March 3 the Wall Street Journal quite seriously reported this and other aspects of the sham battle among the Pentagon titans.

The New York Times on March 5 contributed its bit with an editorial titled "The Packard Bombshell." It was a superb job of ignoring the disastrous recommendations that actually appeared in the report and finding comfort in reading between the lines. The Times said, "The commission implies" criticism of Congress for using the weapons-buying process for the "distribution of weapons contracts and jobs." There were no such words in the Packard report.

The House Armed Services subcommittee hearings opened that morning. Chairman Bill Nichols of Alabama introduced Congressman Dickinson as the man "whose idea resulted in the creation of the Packard Commission." Dickinson said how much he had been gratified by the Times editorial and, addressing David Packard, said that the committee's job in dealing with the defense and appropriations bills would be helped along "if we can get public sentiment behind your commission." The violins were already launching into "Hearts and Flowers."

David Packard was treated with the worshipful deference that is a billionaire's due. His commission had so successfully changed the subject that he felt it unnecessary to go into such disagreeable matters as the procurement fiascoes. It was much more uplifting to philosophize about the organization of the Joint Chiefs of Staff and matters of grand strategy.

His incidental mentions of procurement simply repeated the familiar Packard chestnuts about "contractor self-governance" and the need for "a more productive partnership between government and industry."

There were a few serious questions from some of the representatives. Congresswoman Boxer asked why the commission was against letting the DoD use investigative subpoenas when looking into alleged misdeeds by contractors.

That would discourage contractor "self-governance," Packard said. When she asked why Packard had not endorsed a civilian procurement corps instead of a military officer- nominated one, his response was minimal and unilluminating.

Congressman John Bryant asked the toughest question of the day. Who was responsible for putting that outrageous "only the crimes in progress" clause in the commission's report?

The prime movers, said Packard, were "Bill Clark and Carla Hills." Judge William Clark, who had been NSC staff chief before Robert McFarlane, was now working as a partner in the law firm of Rogers and Wells, Lockheed's lawyers. Carla Hills was senior partner in the huge corporate law firm of Latham, Watkins and Hills, whose many defense contractor clients included Hughes Aircraft. But nobody thought to remark on Emperor Packard's new clothes. In the Reagan era, let it be remembered, such conflict-of-interest nudity seemed taken for granted.

Congressman Mel Levine, known as a reformer who might be critical of the Pentagon, was allotted just thirty seconds for questioning. Ron Wyden asked a question about unpriced contracts like the one for the $8,832 pulley puller that should have cost no more than $69. Packard answered obscurely and wouldn't make any commitments about correcting the practice.

Packard's back-up witnesses were Frank Carlucci (later secretary of defense), retired Army General Paul Gorman, retired Admiral James Holloway (a Washington lobbyist and consultant to the big brokerage house of Paine Webber Mitchell Hutchins) and retired Air Force General Brent Scowcroft. No congressman asked any of them about their possible conflicts of interest.

In the end the administration had pulled it off. Almost all of the people had been fooled at least part of the time. The commission's work was hailed on Capitol Hill; the Pentagon was ecstatic. On March 12, National Security Adviser John Poindexter wrote Weinberger a SECRET memorandum noting that this "most favorable" reaction in Congress would give "the President considerable leverage in dealing with the more radical proposals for reform that abound in both Houses." He asked for Weinberger's comments on an attached draft of a secret National Security Decision Directive (NSDD) that would "implement" the Packard program.

At nine-fifteen on the morning of March 13, I was given copies of this memo, the draft directive, a proposed presidential press release backing the Packard Commission and extending its term, and a draft of a presidential letter of endorsement to be sent to the speaker of the House and the president of the Senate. I was given just an hour and a quarter to write my comments on all this. Poindexter explained in his cover note to Weinberger that the directive was designed to strengthen the secretary's hand against the pending reform legislation and to ensure his control over any enforcement of reforms.

In short, the serious fix was in. The only reason all this was classified as secret was to hide the fact that the Packard exercise was indeed antireform. As I wrote my hasty comments, I had an ominous feeling that the big payout machine was about to win. The victory was proclaimed by the White House on April 2 with a press conference to signal acceptance of the Packard recommendations.

The final document was a National Security Decision Directive titled "Implementation of the Recommendations of the President's Commission on Defense Management." With minor changes, this was the same garbage that Poindexter had sent to Weinberger in draft form along with his SECRET memo. The directive produced a small mystery. We discovered that there were two versions of it: the official, public one, which was undated, and a classified one designated NSDD 219. When we obtained a copy of the classified version from Lieutenant Colonel Bill Byrne of the acquisition management office I found that the effective date was April 1 -- April Fool's Day -- 1986. On the signature page was a hand-drawn X ("his mark"?) and next to it a signature that read "Ronald Reagan." But Reagan was on the West Coast the day the paper was issued from the White House. Could it have been that the White House auto-pen was having an April Fool's joke on the country?

After Packard's triumph on March 5, the administration sent him back to the Hill for a mopping-up operation before committees in the House and Senate. As befitted a victor, he was greeted with flowers of rhetoric and exaggeration. "You are a perfect example of complete ethics in government," said Congressman Charles Bennett. "I've often cited you as that."

Congressman Dickinson quoted Packard's former military aide, Ray Furlong. "He said, in looking over your proposals, that you had the same idea then fifteen years ago and you hadn't changed your mind yet. Is that right?"

Packard answered: ''That's about right."

Right. And the results of those "same idea(s) fifteen years ago" had been order-of- magnitude price increases, technical weaknesses in our big weapons systems, and a sapping of American industrial competitiveness.

Packard's afternoon at the Senate was even more of a love-in. Senator Sam Nunn, thanking Packard for his sterling effort, said, "Senator Goldwater and I stayed in touch with Mr. Packard and other members of the commission for many months of their hard work." Goldwater, more florid, said, "I have followed David Packard on this thing since the day he has gotten in town, and every time he had the answer I went to sleep with it and enjoyed sleeping with it very much." Then Goldwater went on to produce the most thunderous false prophecy of the year:

I am thinking, for example, of the B-1, at one time one of the most expensive programs we ever conceived, but under proper uniform management, the aircraft was being brought in under cost and ahead of time. That is what we are after (emphasis added).

At that time the catastrophic failures of the B-1 were still under wraps of secrecy. But Goldwater turned out to be right about one thing: the B-1 debacle was a splendid example of what David Packard's reforms had to offer.

The administration moved immediately to solidify its victory. On April 10, D.O. Cooke, deputy assistant secretary of defense, issued formal orders for "implementation" of the Packard Commission's recommendations. All this congressional and bureaucratic approval came, oddly enough, before the final Poindexter-Packard report was made public on July 2. When that happened, my associates and I saw full confirmation of the bad news.

The bad news wasn't so much the report's separate recommendations -- we were prepared for all of those -- it concerned a bigger concept: the long-established set of rules for organizational checks and balances. In a large bureaucracy it is important to have different offices and agencies check on one another's activities to inhibit collusive fraud.

In June 1988, when the news of the Pentagon scandals broke, few people seemed to realize that actions such as Packard's had invited the corruption the FBI investigation was bringing to light. When ABC's David Brinkley discussed the matter with a panel on his "This Week" program on June 26, 1988, the question heard again and again was, "How did this happen? George Will asked, "Why, in the middle of 1988, is this suddenly erupting like Vesuvius in a meadow -- as if no one had any inkling?"

Part of the answer lies in Packard's recommendations, and those of other high administration officials, in regard to cross-checking, auditing, and overseeing. "But what about the guards?" Sam Donaldson asked the two defense-contractor representatives on the panel. Was there no one responsible for preventing such abuses as collusion between corrupt officials and crooked industry consultants?

The answer, from Donald Fuqua of the Aerospace Industries Association, missed the point: he did not believe that secretaries Weinberger and Lehman were personally responsible for laxity. No one pointed out that the relaxation of independent vigilance and the crippling of cross-check authority under Reagan had led to the greatest opportunities for waste and conspiracy.

From the start the Reagan administration was opposed to such checks. In 1981 administration appointees in the GAO brought in a new procedure that was an obvious sham. Instead of offices or organizations being responsible for checks and balances individual people would be. Thus an inspector might report to a manufacturing manager one on one. Without the oversight function of an independent office, if the inspector and manager connived with each other, no one would know the difference. The perpetrators of this atrocity were appointees from the big eight CPA firm of Arthur Andersen and Company, advisers to the Packard Commission.

It is easy to see how this company's Packard Commission work, entitled "A Study of Government Audit and Other Government Oversight Activities Relating to Defense Contractors," might be tainted by a gross conflict of interest. Among Andersen's big contractor clients was General Dynamics, then under investigation by Congressman Dingell's committee.

Even more telling was the fact that the Andersen study faithfully paralleled the October 2, 1985, recommendations to Packard from the National Security Industrial Association (NSIA). This organization, a creature of the big contractors, was established to make known their views on "contracts, production procedures, specifications, and requirements." Its October 2 letter complained at length about "overregulation and micromanagement on the part of Congress and the DoD." In other words, the association was worried about increasing oversight. Arthur Andersen's report agreed that that was a bad thing.

NSIA said that "in recent years, the authority of the contracting officer has been whittled away" and that pushy auditors should be put back in their place. Andersen's report echoed that in slightly different words. NSIA said that Congress ought to declare a "moratorium on procurement legislation." Andersen said, "There should be a moratorium on the issuance of new procurement laws and regulations affecting defense contractors."

But one of the worst mischiefs of the Packard reforms was the insistence, fully endorsed by his CPA firm consultants, on the Pentagon's cost-justification rule. The cost-plus formula had proved to be such an easy rationalization for high prices as to make stealing seem legal. "One definition of a fair and reasonable price . .. is a price that closely approximates the seller's cost to make or acquire the part plus a reasonable profit." This, of course, was the antithesis of the honest should-cost yardstick my colleagues and I had so long advocated.

The Packard Commission asked the CPA firm of Peat, Marwick, Mitchell and Company, auditors for General Electric and other military contractors, to review the audit and control recommendations in its report. Peat, Marwick was concerned with "necessary benchmarks for establishing the composition of the 'costs' of contract performance." Their report favored proper "assignment of costs to final cost objectives, or the allocation of costs to contracts."

This meant that contractor companies should submit a clean sheet for any claims, a sheet without errors and with no illegitimate items. In other words, all the numbers had to foot and cross-foot, and any charges for bribes or whores had to be well disguised.

The Packard Commission had a habit of going to poisoned -- or at least tainted -- wells. There was the matter of businessmen's ethics in the contractor "self-governance" clause. Packard hired a consultant firm called the Ethics Resource Center (ERC) to write the "Conduct and Accountability" portion of his report. After conducting a survey of defense contractors, the ERC recommended that they adopt unambiguous codes of ethics. It failed to address how Sunday School lessons would impress the Hell's Angels or whether contractors who made their profits because they had no ethics would be converted by lectures to the ways of righteousness.

This performance drew the attention of the Project on Military Procurement, which looked into the background of the ERC. It reported:

The Center has received significant amounts of money from corporations that have been found to be guilty of misconduct. Ethics Resource Center sets up programs for companies, working on such a program for General Dynamics just before working on the report for the Packard Commission. (ERC) received $30,000 from General Dynamics. GD had contacted ERC immediately after being suspended for misconduct. The Center also received money from McDonnell Douglas while that company was being investigated for misconduct, and from Clifton Precision after that division of Litton was suspended. The Center wrote, in the conclusion of its report, that many defense contract firms have taken significant action to establish, communicate, monitor, and enforce policies and procedures to ensure a high level of business conduct. In each area, actions could be improved upon.

As Juvenal asked, "But who is to guard the guards themselves'" (sed custodiet ipsos Custodes!). Who teaches ethics to the Ethics Resource Center?

The only newspaper I knew of that was willing to report the flaws in the Poindexter- Packard report was the Boston Globe, which carried Fred Kaplan's comprehensive account on July 27, 1986. Most of the press had been fully and truly conned, however. A typical headline would be: DEFENSE CONTRACTORS ASKED TO POLICE THEIR EMPLOYEES, and the story would cite contractor self-governance as a part of the Pentagon's "get-tough" policy. The bitter harvest of our laxity, capped by this self-governance policy, was to come in June 1988 with the news that fifteen large defense contractors, a number of defense consultants, and at least six Pentagon officials were targets of FBI investigations into collusive fraud.

The central purpose of all the testimony, reports, and directives, of course, was to influence the bill Congress was putting together. The Air Force launched its own lobbying effort and at the same time set up a "study" group under the rubric of the Acquisition Streamlining Panel, headed by Dan Rak, deputy to the Air Force assistant secretary in charge of acquisition, but otherwise dominated by military officers.

Meanwhile Congress was fighting a sharp behind-the-scenes battle over the Poindexter- Packard plan. Most of the big spenders pushed for the recommendations in the report -- in effect, putting the military in charge. Traditionalists on the armed services committees, under severe pressure from the reformers, fought for a broad commitment to civilian control.

Who finally won the battle of Goldwater-Nichols, Public Law 99-433, on October 1, 1986? On the one hand the law provided for an Air Force inspector general who would be "selected from the general officers of the Air Force." It also required that all of his deputies be "officers of the Air Force." On the other hand, its first stated purpose was "to reorganize the Department of Defense and strengthen civilian authority." That language gave comfort to the Capitol Hill reformers and to me. We hadn't quite reckoned with the awesome duplicity power of the U.S. Air Force.

Its foresight in setting up the Acquisition Streamlining Panel, a so-called study group, was now about to pay off. Strategy? Simply ignore the Goldwater-Nichols commitment to civilian control and shift as much power as possible into the hands of the military. On November 24 the panel submitted its report for reorganizing the Air Force acquisition system. Instead of Goldwater-Nichols, the report took as its overriding authority NSDD 219. And, most ominously, the panel called its proposed plan "the New Order." It took considerable arrogance to produce that name. Adolf Hitler's "New Order in Europe" was only forty-one years in the past.

The civilian side of Air Force headquarters is the Secretariat; the military side the Air Staff. Goldwater-Nichols forbade the Secretariat from surrendering certain controls to the Air Staff. But the New Order got around that by delegating those controls to the next lower levels of military command -- the Systems Command (AFSC) and the Logistics Command (AFLC). The areas delegated to AFSC and AFLC were:

Refunds. Verne Orr had used this authority to try to recover some particularly horrendous overcharges for spare parts from contractors. The generals bitterly resented this because it spotlighted their giveaways.

Progress payments. Under the old system, John Boddie, a deputy to the assistant secretary for financial management (SAF/FM), was responsible for making payments on contracts. We had started a promising scheme called "Quality Control and Cost Control at Point of Payment," meaning that if the contractor's work was done on time and up to standard, he would be paid the agreed-on price. Progress payments were supposed to depend on genuine progress.

Work standards. The military would now decide whether contractors should live up to the Military Standard for work measurement. (Assistant Secretary Carver had already taken this out of my hands in 1985.)

Authority to grant contracts in the face of protests. The right to proceed with contracts in spite of charges of irregularity was transferred from the Air Staff to the four-star purchasing commands.

Authority to approve multiyear contracts. This was transferred from the Air Staff to the AFLC and the AFSC.

The last two shifts evaded Goldwater-Nichols by quickly transferring areas of power to the four-star commands before they had to be turned over to the Secretariat.

Along with all this, the New Order gave most of the purchasing authority to a three-star general, the director of acquisition, with a staff of four hundred people. The new civilian assistant secretary for acquisition had a handful of people and a lesser role.

The New Order wasn't classified as secret, but it was considered "close hold." Nevertheless, the scheme was revealed when a closet patriot gave it to the Project for Military Procurement, which gave it to the press on February 26, 1987. This produced a small revelation of another kind: the press was quite as ignorant of modern history as the military: almost no reporter had heard of Adolf Hitler's New Order. Hitler gave the world fair warning in Mein Kampf of what he was up to. And our own military and their allies have given us fair warning of their uses of the Wehrwirtschaft.

Was the New Order takeover uncongenial to the administration appointees in the Pentagon? Not at all. Air Force Assistant Secretary Carver was agreeable; the military had promoted him to be a full colonel in the reserve. Undersecretary Aldridge had been part of a move to set Parfitt and me up for possible criminal prosecution and contractor damage suits in retaliation for our congressional testimony. And the new undersecretary of the Air Force, James McGovern, was an important figure in the New Order. As Goldwater's Armed Services Committee staff director, he had not been notable for being tough on the military spending coalition.

I tried a number of times to arrange a meeting with McGovern or Aldridge to work out our differences, but the attempts were ignored. Representatives Dingell and Aspin wrote to Weinberger protesting the coup but were brushed off. Under their commander in chief, the military were marching resolutely toward the New Order.
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

Postby admin » Sat Nov 02, 2013 2:11 am

14. The Santa Claus Coup

ON AUGUST 2, 1776, fifty members of the Continental Congress blew the whistle on their king, George III. They signed the Declaration of Independence, asserting that George had "so abused the Laws of Nature and of Nature's God" as to justify casting off the royal authority. Count number twelve against the king was that "He has affected to render the Military independent of and superior to the civil power." That was a very real concern among the founding fathers, who relied on the warnings of history in establishing the new republic.

In the Federalist Papers 41, James Madison wrote:

If one nation maintains constantly a disciplined army, ready for the service of ambition or revenge, it obliges the most pacific nations who may be within the reaches of its enterprises to take corresponding precautions.... The veteran legions of Rome . .. rendered her mistress of the world (but) not the less true it is that the liberties of Rome proved the final victim to her military triumphs; and that the liberties of Europe, as far as they ever existed, have ... been the price of her military establishments. A standing force is a dangerous, at the same time that it may be a necessary, provision.

Madison went on to say that large armed forces are at the least an inconvenience, at the worst fatal to the liberties of a nation.

In the past such valuable safeguards had kept the country free of military influence in politics. When generals were elected president -- Washington, Jackson, Grant, and Eisenhower -- they were rewarded as retired heroes, not as men on horseback. General Douglas MacArthur's defiance of President Truman's orders and the subsequent MacArthur boomlet for the Republican nomination are about as close as we've come to a military presidency, and that was not very close.

The interesting thing about American history is that the patterns are usually different from the patterns of history in other countries. One of the big contrasts is that we do not expect to see the military coup, the man on horseback, or the military junta in charge. Our dictator will not arrive at the head of a tank column coming down Pennsylvania Avenue. But it is only too easy to overlook him in the form of a thousand unarmed, well-behaved, anonymous officers sitting at their desks in the Pentagon and, in alliance with civilian contractors, gradually taking power over a huge part of the public economy and a whole range of governmental decisions.

Dwight Eisenhower, who knew the American military subculture as well as anyone, made one of the most clear-sighted democratic statements in our recent history when he warned in 1961 against allowing "the military-industrial complex" to have "undue influence in the councils of government." This was the first definition of something we'd never quite reckoned with before: the importance of econo-military issues in national policy. The new force Eisenhower was describing had arisen from the interlocking of the national security establishment and a great war industry. (Unfortunately, although Eisenhower described the problem, he did little to solve it.)

Herbert Hoover had recognized some of its dangerous effects. The 1956 Hoover Commission report, titled "Unbusinesslike Attitudes," said:

The performance of its national role, almost of necessity, introduces into the Defense establishment a philosophy and an attitude that are inconsistent with sound business principles as well as with economy in Government. Essentially, it is the military attitude that it is much better to have a surplus of supplies and of personnel than to have too little, because deficiencies might cause defeat. Obviously, this is true, and, obviously, also, it is unbusinesslike and wasteful. This philosophy is epitomized in the remark of a prominent flag officer:

"Our military people are not hired primarily to see how little they can get along with; they are hired primarily to seek to get enough materiel to meet their responsibilities."

An Assistant Secretary of Defense expressed the same view:

"It is not unreasonable to expect responsible military personnel to desire sufficient manpower and materiel at any place and at any time to minimize potential risks. Cost, even though given active and sympathetic recognition, tends to assume a secondary role."

The Hoover Commission noted some improvement in the "management structure" of the Pentagon but found that the secretary of defense had little real control over the joint chiefs or the three services. The efficiency level, Hoover found, was low, especially in the use of personnel. Here the commission made an important philosophical and psychological distinction:

The dual personnel system, with both military and civilians working side by side, involves increased costs and difficult problems of management. This is made much more difficult because the uniformed personnel are expected to function on the basis of command while the civilian personnel are expected to operate on the basis of sound management principles. These two dissimilar approaches are bound to clash.

And clash they did. Over the years, however, the military faction won almost every encounter. A few patriotic officers, it's true, tried to buck the System, but they quickly found themselves ostracized.

As the military party in the Pentagon steadily gained influence, attitudes in big business, Congress, the banking community, and major universities altered dramatically. From the post-World War II view that military spending was a necessary evil that ought to be curbed in peacetime, these powers and principalities began to view defense, or at least spending for defense, as necessary. Every one of them was profiting from it, after all. Then came the High Priests of Waste, those strange economists who reassured us that wasteful spending was not only necessary but good. It made jobs; it kept the economy humming; it subsidized the universities; the whole country just got richer and richer spending money on something we hoped we would never use.

The Hoover Commission's excellent insights went further:

This anti-economy and unbusinesslike attitude is of fundamental importance, for it permeates the thinking of the entire establishment. Although civilian control of the armed forces is accepted as a principle of American Government, this approach of a professional soldier has influenced the thought and actions even of the responsible civilian officials. This type of influence is not easily eradicated by reorganization or other simple means. Yet every responsible step should be taken to make civilian control of the defense establishment a reality; otherwise we might end up with a military dictatorship.

Hoover's thoughtful report in 1956 and Eisenhower's thoughtful warning in 1961 came too late. By that time the alliance of suppliers and the military was becoming the single most potent force in the economy. One soldier even had the audacity to speak its guiding motto out loud. On August 2, 1967, in a meeting at Wright-Patterson Air Force Base with me and others, Major General "Zeke" Zoeckler said that "inefficiency is national policy." Significantly, the general was in the process of defying written orders from Deputy Secretary of Defense Paul Nitze, DoD Comptroller Robert Anthony, and Assistant Secretary of the Air Force Ted Marks, all of whom wanted him to cut the fat out of the F- 111 fighter bomber program of which he was director.

Zoeckler's successful insubordination was the beginning of a series of triumphs for the military. Emboldened by the indulgence of the Nixon administration, they began to come out from the dark corners of the officers' clubs and speak their piece in public. Lieutenant Colonel William Simons in the official Air University Review of March 1969 wrote:

In the continuing controversy over Vietnam, it has become the vogue for those critical of U.S. involvement to challenge the policy role of the military. Charges of brainwashing the public have been leveled against that old bugaboo "the military- industrial complex." Some extremists (Eisenhower?) have demanded an end to "the Pentagon's unwarranted influence" on national policy formulation. But in this respect the current confrontation between Vietnam "doves" and "hawks" has provided only the most recent episode in a recurring controversy in American public life.

Simons went on to say that the military officers already deeply embedded in the government had developed an unfortunate tendency "to accept the political objectives stated by civilian authority as given." This was quite unacceptable to Simons: "To borrow from Clemenceau, if war is too important to be left to the generals, the maintenance of peaceful order is too complex to be left to the politicians or the political idealists."

The Declaration of Independence and the Constitution be damned, this officer implied. The military "have an obligation that goes beyond purely constitutional imperatives." He summed up, "It remains only for the military profession to use the institutional staff structure provided for it to help relieve these shortcomings in the nation's policy-making processes."

On the face of it, this might sound like a statement dear to the heart of Generalissimo Franco or the Argentine high brass of 1976-1983, but it is not quite that. Notice the language -- not that of the rebel commander at the head of troops but that of the bureaucrat who sees "the institutional staff structure" as the lever of power. With this kind of thinking going unchallenged, it is no wonder that the Poindexter-Packard coup was so easy to pull off or that the Air Force's New Order was so readily accepted.

For me, the move that came closest to home was the attempt to destroy my usefulness. On March 7, 1987, the National Journal carried David Morrison's full-page article titled "Extracting a Thorn, Air Force Style." The thorn, of course, was "procurement expert, A. Ernest Fitzgerald." Congressmen Dingell and Aspin thereupon wrote a letter of protest to Weinberger saying, "We fully expected the Air Force to use the Reorganization Act to take punitive action against A. Ernest Fitzgerald -- which they have done with a vengeance."

When they wrote this letter, the two committee chairmen did not quite realize that the Air Force was not reorganizing in accordance with the Goldwater-Nichols bill, now law, but in accordance with its own secret agenda, the Poindexter-Packard plan. Thus they were surprised at the scope of the takeover. The statutory civilian post of my boss, the assistant secretary for financial management, was to be abolished and his oversight functions allotted to a three-star general. As I noted in Chapter 12, the new assistant secretary of the Air Force for acquisition, a civilian, would be a figurehead; his deputy, and the man with the real power, would be a three-star general, Lieutenant General Bernard Randolph.

"Obviously," the chairmen wrote, "the three-star general is under the Air Force command structure. Reducing the civilian component will mean that the Secretariat will, in effect, be depending on a three-star general to oversee the effectiveness of various commands headed by four-star generals. In other words, a three-star general is being asked to hold four-star generals accountable."

That was an anomaly, but the worst effects, the chairmen recognized, were the emasculation of civilian controls over purchase of major weapons systems and the virtual elimination of checks and balances:

This portends the worsening of an already dismal record of financial and technical management of major acquisitions in the Air Force due to inadequate or non- existent cost and technical controls. The B-1 debacle is only one example.

We would like to receive your assurance that what appears to be a virtual elimination of civilian control in the Department of the Air Force will not take place, and that instead, you will take immediate action to ensure that civilian control is reinforced in the Air Force reorganization, as well as in the reorganizations of the other military department headquarters.

In answer, Weinberger thumbed his nose. The next day, March 27, he put the New Order in place. My office was put under Lieutenant General Claudius E. "Bud" Watts III, the military comptroller of the Air Force. Other generals assigned to the civilian Secretariat reported through the military chief of staff to their nominal civilian supervisors. The coup was as complete as the Air Force wanted, at least for the moment. Its generals now had approximately $100 billion for patronage.

Representatives Dingell and Aspin were not pleased. The March 30, 1987, Washington Post headlined a story, "Ill Winds for Air Force Staffing Plan," with the subhead, "House Chairmen Say Reorganization Weakens Civilian Oversight." Capitol Hill expected a joint hearing and an attempt to undo the coup. But in the end it was Chairman Bill Nichols of the House Armed Services subcommittee -- openly unhappy at having to question the boodle-distributing military -- who held the gavel.

He led off by saying that he wanted to "step back and let the responsible officials in the Department of Defense ... implement the law." But, he said:

The subcommittee is ... caught in the middle between two very prominent chairmen and the Air Force Secretary (Aldridge), who maintains that he has been faithful to the law. It is for this reason that I have invited the Secretary ... to begin this series of hearings. I would also note that I have invited both Chairman Aspin and Chairman Dingell to participate in these hearings as they see fit.

Unfortunately, they did not see fit. And thus Nichols's deferential attitude was an influence throughout the hearings. (One evident source of interest to some subcommittee members was the rivalry between Dingell's energy and commerce investigating subcommittee -- Dingell was also chairman of the full committee -- and the Aspin committee. In the course of the questioning, the focus turned to my work for Dingell. Congresswoman Beverly Byron had this exchange with Secretary Aldridge:

BYRON: You stated that there is a court order describing his job description and mandating that. In that court order, does it say -- First of all, what are the hours at the Pentagon? Eight o'clock to quarter to five?

ALDRIDGE: My hours?

BYRON: No, no. Just general.

ALDRIDGE: I think there is an official order around that says eight to five, I believe.

BYRON: Eight to five, okay. Having said that the official time is eight to five, is Mr. Fitzgerald in the Pentagon from eight to five on a daily basis?

ALDRIDGE: Not at this time.

BYRON: Has Mr. Fitzgerald been subpoenaed by a subcommittee to be on Capitol Hill on a daily basis from eight to five?

ALDRIDGE: Well, Mr. Fitzgerald has -- There is an agreement that Mr. Fitzgerald is part-time reporting to Congressman Dingell's staff for activities as they call for.

BYRON: So, really, he is not full-time back in what was his old job?

ALDRIDGE: At this point, he is not.

BYRON: Which is what the court order stated he should be doing? Is that correct?

ALDRIDGE: That is correct.

The point of citing this bit of testimony is to note how the Air Force managed to twist it. Major Skip Morgan, Aldridge's legislative lobbyist, summed it up this way in the resume he sent around to Pentagon offices: "Mrs. Byron asked what percentage of Mr. Fitzgerald's time was spent on the Hill giving inside information to certain other committees of Congress."

Petty as this revenge was, Aldridge's grossly misleading testimony was worse. The "court order" said nothing about hours of work; I always averaged more than forty hours a week at my Pentagon job, apart from the committee work (ironically, I first read Aldridge's testimony while working in my Pentagon office on a beautiful Sunday morning in May); I was assigned to Dingell's committee as an Air Force duty, not as anything else. The Dingell detail was an item on my evaluation sheet so that my Air Force bosses could grade my performance on it.

But the most bizarre of Aldridge's aberrations in his testimony was this: "Mr. Fitzgerald does not have an evaluation form (a form on which principal job duties are recorded). He refuses to fill out an evaluation form on which he can be evaluated."

This was absurd in view of all the controversy about my so-called work plan and "evaluation form" (see Chapter 11). Aldridge was clearly trying to change the subject by his false personal attacks on me. As Dingell's November 6, 1985, hearing had shown, my repeated submission of work plans had been misused by Aldridge's assistant, Richard Carver, to try to discredit me. When that was exposed, Carver was embarrassed into withdrawing his unjustifiably unfavorable evaluation. Aldridge was well aware of all this, and he also would have known that my revised evaluation form had been approved by Carver on February 23, 1987. So the useless lie takes its place in the long list of minor harassments and retributions of my Pentagon career.

With serious Air Force management problems already evident under the New Order and with the FBI's secret investigation of collusive fraud under way, Aldridge had focused his attentions and mental effort on damaging me with lies rather than looking to our weak and crumbling defenses against waste and fraud. And the Armed Services Committee let him get away with it.

Even though they didn't take part in Nichols's hearings, the Dingell staff was keeping watch on the New Order. Among the relevant documents the staff acquired was an interesting New Order organizational chart. It showed that the nominal head of the project was Dan Rak, deputy assistant secretary (acquisition management), a friend of the big contractors but a man who was passive to the point of near-inertness. An ideal front man. The real leader of the enterprise was Colonel Jim Lindenfelser, one of the Air Force's most intelligent, energetic, and capable officers. From a lowly beginning as defender of the (figuratively) gold-plated, diamond-studded C-5A coffeepot, he had risen to be one of the most effective workers on the Packard commission staff. Then, having helped to formulate the Poindexter-Packard recommendations, he returned to the Air Force to carry them out.

Another interesting name on the chart is that of Lieutenant General (retired) George Sylvester, head of the Organizations subproject in the New Order. As vice commander of the AFSC, he had presided over some of the greatest boondoggles in history and had headed the commission that finally put the lid on the Hughes Aircraft scandal.

Organizational chart of the New Order.
Acquisition Streamlining Panel Organization: Mr. Rak, Col. Lindenfelser; Technical Staff; Requirements, Col. Shmoldas; Program Mgmt., Col. Lee; Contracting, Col. Swisher; Logistics, Col. Wheeler; Organization, Lt. Gen. Sylvester

At first the Nichols subcommittee found little to criticize in the New Order. However, it later relented somewhat and pushed a bill through Congress requiring the Air Force to restore a civilian to the top financial management post -- in 1989. Reagan vetoed the measure, but it was passed again and finally signed by a departing Ronald Reagan.


Toward the end of May 1987, I again gave the soldiers of the New Order reason to want to gag me. Following Dingell's investigators, I went to California to inspect and review the MX missile program. We scheduled stops at Northrop's MX operations in Hawthorne and the Air Force Program Management Office at Norton AFB in San Bernardino.

When I arrived at Hawthorne, the committee staffers had already collected sensational evidence of the familiar kinds of mismanagement and corruption. Out here, we discovered, closet patriots were called "allegators" -- those who allege -- and enough of them had spoken to Peter Stockton to give him a picture of an incredible mess in quality control and material control. The Northrop engineers' frequent design changes had produced chaos in the factory. After materials were ordered according to design specifications, the specs would change several times before delivery. Orders for new material were placed, but old orders weren't canceled. So much unusable material was stacked up in the plant that Northrop didn't know what to do with it.

These were not ordinary spare parts. It was complicated, expensive hardware, quite a bit of it plated with gold and much of it classified. How did Northrop solve the problem? They simply threw the hardware into dumpsters and junked it. To prove this, the allegators produced eighty-three banker's boxes full of missile guidance parts, some gold-plated and classified, that had been put in the trash.

The huge volume of orders and reorders had so swamped the purchasing department that management was sending the engineers out to buy spare parts wherever they could -- Radio Shack was a favorite vendor -- and be reimbursed out of petty cash. This desperation measure bypassed the elaborate and expensive quality control system the Air Force paid Northrop to maintain. And Northrop's internal control systems did nothing to flag the breakdown and attendant defalcations.

Total chaos threatened when the run on petty cash grew out of proportion. The allegators told us that the lines of engineers waiting to be reimbursed got so long that the halls were clogged. Clearly out of its depth by this time, management resorted to authorizing some key employees to set themselves up in business to buy spare parts. It worked this way: the employee would take out a business license, get a mailing address (usually the check-cashing store across the street from the plant), buy parts, then reimburse himself out of a revolving fund. Each employee "company" was given a name but, generically, they were known as DBAs -- "doing business as."

When word of these Rube Goldberg ways of running a company leaked out, management got scared enough to decide that the DBAs should be audited, at least nominally. That in turn scared the employee-proprietors, who thought they might end up as the fall guys. So they were eager to tell their tales to the congressional investigators.

Both Air Force and civilian managers at such plants have tactics for dealing with snoopy official visitors like us: they bore them to death. They try to use up as much time as possible with lengthy boiler-plate briefings and Vu-Graph lectures in hopes that the intruders won't have enough time left to find out where the bodies are buried.

When I arrived at the Northrop plant, Stockton and his associates, Bruce Chafin, Claudia Bevill, and Charlie Rey, were late because they were dealing with the huge bonanza of allegator evidence. We explained to the plant managers and USAF officers who met us that we were behind schedule and wouldn't they please dispense with the usual time killers?

Sorry, no, they said. At great expense and trouble, Northrop had prepared complete and extensive briefings for us, explained the group vice president and acting MX program manager, D. N. Ferguson.

To speed things up, couldn't we at least have paper copies of the Vu-Graphs? That would save us the trouble of taking notes on each graph or chart.

A very difficult request, Ferguson thought; it would have to be referred to the Air Force.

I said that I was the senior Air Force representative present and that Northrop had my permission to distribute copies of the unclassified Vu-Graphs, And while they were about it, I'd also like copies of the latest cost performance reports (CPRs) for each of the Northrop MX contracts.

Suppressed consternation. The Air Force officers present -- Colonel Speed, the program manager; Colonel Hatfield, the plant representative; his aide, a captain; and some Northrop managers left the room.

We had won a point, it seemed; after they came back, Northrop handed out copies of the Vu-Graphs and the captain gave us copies of the available CPRs. But something continued to agitate the Air Force officers, who kept leaving and returning throughout the meeting.

During the ponderous and rather pointless briefings, we interrupted from time to time with questions about our specific line of inquiry, but we got no substantive answers. Northrop's lawyer suggested that we be quiet and listen to the lecture.

Would Northrop answer some questions as to the extent of their public disclosure of their contingent liabilities arising from substandard contract performance? Northrop should understand that Chairman Dingell's committee was responsible for overseeing the Securities and Exchange Commission, which requires full and timely disclosure of such contingent liabilities.

No, Northrop was not prepared to answer any such questions.

Would Mr. Ferguson then bring to the meeting Mr. J. R. Roehrig, vice president and manager of the finance department? Mr. Ferguson surely remembered that one of our advance requests was to meet with the plant's top financial person.

Mr. Ferguson seemed to be having an attack of nerves. We were throwing too much at him at once! Why couldn't we ask our questions in a more orderly manner? He would have to staff them. Finally, he turned to one of his assistants and ordered him to get "the girl" so he could prepare written questions for the staff.

Mr. Ferguson's secretary appeared and he began to dictate questions:

1. Who is Mr. Roehrig?

2. Is he here?

3. Can these people talk to him?

He then told his "girl" to type the questions and bring them to him to sign. In a few minutes she returned with the paper, which he signed. Now these important questions could be staffed.

Eventually, we got our answers:

1. Mr. Roehrig was Mr. Ferguson's vice president of finance. (We already knew that. It was printed on the organization charts.)

2. Mr. Roehrig was not in the plant. (At least not by this time.) We couldn't talk with him.

3. Mr. Roehrig was recovering from a heart attack. (Possibly brought on by the scams he was involved in?)

In the meantime, as we learned later, some serious telephoning was going on between Hawthorne and the Pentagon. General Larry Skantze checked with Lieutenant General Bernard Randolph. A few minutes later the Air Force officers came into the meeting and requested that I give back the CPRs.

I didn't fall for it. This had happened to me once before, in 1986, when an Air Force officer at Lockheed-Georgia had demanded I return some contractor documents. That time I had given in.

But the big secret that Northrop was trying to wall up in the cellar was the dummy companies, the DBAs. We had asked to speak with a Mr. Kroll and a Mr. Peterson, both of whom had firsthand knowledge about them. For about an hour and a half, in some separate office, the Northrop managers and two Air Force officers tried to persuade Mr. Kroll not to talk with us. But Mr. Kroll said he had nothing to hide; he didn't mind meeting us.

When our talk with Kroll finally took place, Mr. Rosenberg, a Northrop assistant general counsel, and Colonel Speed were there to monitor. Kroll, cautious but helpful, explained about the DBAs. He also gave us some other troubling information: that certain important red-line drawings (design drawings modified in red pencil by engineers), documents, and records may have inexplicably -- and very recently -- gotten lost.

The upshot of this was that Kroll, accompanied by an AFPRO captain, went off to lock up the papers and records, reinforcing the locks with A quality-control seal. Colonel Speed expressed dismayed astonishment at the DBA revelations. He seemed cooperative and promised that when we reconvened next morning at his Norton AFB headquarters, there would be no more of the nonsense we had just encountered.

But a chill wind from Washington must have swept in overnight. When we arrived at Norton, the temperature had dropped by fifty degrees. We didn't get the customary handshake from the commander, Brigadier General Barry, but we did get visitor badges and escorts. We were taken to a small amphitheater and held there. When we went to the men's room, an Air Force lieutenant came along to watch us.

After the meeting finally began, it was clear that the Air Force had determined not to surrender the way Northrop had the day before. They were determined to head off our pursuit of the gold-plated trash and the DBAs. The boiler-plate briefing was endless. The Vu-Graph papers were denied us; General Barry told us that anything we asked for would be requested in due course through channels. Remembering Colin Parfitt's remark about old-fashioned British military justice, I longed to hold a court-martial for "dumb insolence."

Since Barry told us he was acting on orders from Skantze with approval from Randolph, we asked to set up a conference call with these gentlemen. Barry thought that would be "inappropriate." So we called Skantze from phone booths. Not to much avail, however; he stonewalled stubbornly, saying he was backed up by the deputy Air Force comptroller, the Air Force vice chief of staff, and the undersecretary of the Air Force.

General Barry and his people gave a great dumb insolence performance the rest of the day. They pretended not to understand. They couldn't remember things. They quibbled. They dissembled. They changed their stories repeatedly. If we hadn't known that these were officers and gentlemen, honor-bound to tell the truth in matters affecting their country's welfare, we might have believed that we had wandered into a den of very suspicious characters.

We made little progress until we questioned Cecil Blaznik, an engineer "rented" to the Air Force from TRW Corporation. (The company had for many years rented out employees to monitor other firms for the Air Force.) Blaznik, not long before, had been involved in following up allegations in "the Hyatt case"; a Northrop employee, Brian Hyatt, had brought charges of management irregularities and systems breakdowns, including falsification of test results of the MX missile guidance system. Those charges had been declared "baseless" by Air Force General Aloysius Casey. We asked Blaznik, were they in fact baseless?

Not at all, Blaznik conceded. The charges were serious and some of them had been provable. Northrop and the Air Force had tried to correct what they could.

But how about this? -- and we read the text of General Casey's repudiation of Hyatt.

Blaznik, rattled, tried to recant what he had just said. In his confusion he blurted out that fourteen folders of the original Hyatt allegations had never been shown to us. They were in the files of Air Force Major Boardman, since departed.

Blaznik was sent to search for the files, but he returned empty-handed and thoroughly subdued. It appeared he had received an omerta booster shot. General Barry said he didn't know what else to do. We suggested he start by calling Major Boardman to find out what had been done with the documents. General Barry did not respond.

A little later we did get a look at the district files of the Air Force Office of Special Investigations (OSI), and, of course, the evidence was not at all baseless. We proceeded to question the judge advocate general (JAG), who eventually admitted that he had written the letter closing out the OSI investigation and that Casey had signed it. The JAG tried to explain the "baseless" description by saying that he'd determined there was no basis for criminal prosecution. He further admitted, however, that a Mr. Fahy of the U.S. district attorney's office in Los Angeles had warned him not to talk to us about the Hyatt charges because the D.A. was considering criminal prosecution. It is almost needless to say that the Meese Justice Department didn't see anything criminal going on.


After I returned to Washington it was apparent that our quick review of the MX operation had disclosed symptoms of much larger problems, which could be serious enough to jeopardize the whole program. Northrop was already more than two years overdue in delivering MX guidance systems, and the quality of their work was highly suspect. In fact, some of the allegators charged that the missile, a supposedly vital deterrent, was so poorly conceived and badly built that it might never work correctly.

Northrop's problem now was to find a soft landing. They and their Air Force allies had to head off our investigation with some pro forma inquiry and find a sympathetic venue in which the case could be heard. The obvious choice was the House Armed Services Committee, which held hearings to preempt Dingell. The Northrop-Air Force alliance had to take some routine abuse from irate committee members, but it was worth it. The Dingell subcommittee held its own MX hearing several months later, then turned to other Northrop problems.

I was preoccupied, however, with preparing my testimony before the Nichols Armed Services subcommittee hearing on the New Order reorganization. With Colin Parfitt's help, I laid out the evidence to show that the Big Eight certified public accounting firms had degraded the standards for internal controls in big corporations, particularly defense contractors. This applied especially to the organizational independence of financial management, quality control, industrial engineering, and the like. I traced the history of internal controls in business and noted that in the era of American industrial dominance, leading businessmen always demanded proper organizational structure as a basis for other management controls. Properly designed, such controls inhibit the sort of fraud the Pentagon and its suppliers were accused of following the FBI raids in June 1988.

From our research, I'd concluded that the firm of Arthur Andersen was a major culprit. I've noted their conflicts of interest in connection with the Packard commission and their echoing of recommendations by the National Security Industrial Association for reducing controls on defense costs. And some of their own recommendations were equally bad.

As I noted in Chapter 9, President Reagan had appointed an Arthur Andersen man, Charles Bowsher, Jr., as comptroller general of the United States and head of the General Accounting Office. Bowsher, in turn, had appointed another Andersen partner, Fred Wolfe, to direct auditing and accounting policy in the GAO.

Before these appointments the federal Office of Personnel Management had been training government auditors and comptrollers in the good, old-fashioned checklist for evaluating internal controls in both government and contractor operations. But the head of the OPM training school was soon faced with a new checklist from Wolfe, one that practically eliminated any mention of the need for organizational checks and balances.

I wanted to present my testimony in a noncontroversial way because I expected I would have to face some hostile questioning when I appeared before the subcommittee on June 4. And I was right.

Chairman Nichols (from my home state of Alabama) treated me politely, and Congresswoman Barbara Boxer, by then a full-fledged member of the committee, was fiercely protective. But whenever I'd testified before, there had been at least one committee member out for my scalp, and this time was no exception.

The first to attack me was Congressman Sam Stratton from upstate New York. Stratton is a man who can hold a grudge, and he'd held this one for seventeen years. In 1970, shortly after I was fired from the Pentagon, Congressman Dan Button had arranged a speaking engagement for me at a service club in Albany. Unbeknownst to me, Button and Stratton were election rivals because most of their two districts had been combined into one through redistricting.

After giving my then-standard speech about waste in the Pentagon, I departed and thought no more of it until I began getting attacks from Sam Stratton during testimony before his committee -- allegedly for campaigning on Button's behalf.

By the time of the June 1987 hearing, he'd added a new sour note. He accused me of intervening in the 1970 congressional elections and thereby violating the Hatch Act.

As gently as possible, I tried to explain to Stratton that the Hatch Act applies to government employees and that I had not been employed by the government at the time. Unable to grasp this, he kept hammering away until his time ran out.

Then Congressman Larry Hopkins, ranking Republican on the subcommittee, took over. He began with these questions:

The information that you gather in your position, what do you do with that information? How do you go about exploiting that to the public? or to whomever it is that you might report to? What is the series of steps that you take?

I tried to explain that my small office handled a great volume of paper, most of which went routinely through channels to Congress. Selected Acquisition Reports were a good example.

"Do you ever leak information to anybody? Do you ever hold press conferences? Do you talk to staff members here?" Hopkins wanted to know.

No, I said I hadn't held a press conference for many years. I did talk to his subcommittee staff and to members of the committee as well. I explained that my work with the Dingell committee was part of a formal assignment from the Air Force.

Congressman Hopkins then took it upon himself to lecture me about the proper jurisdictions of various congressional committees. "This is the House of Representatives Subcommittee on Investigations," he said rather redundantly, "and we are the only subcommittee that investigates waste, fraud, and abuse involving the Pentagon. I have never seen you here."

I said I hadn't been invited before.

"Why is it," he asked, "that we read or hear so much about the Energy Subcommittee (Dingell's) rather than this subcommittee involved in some sort of work; why is that?"

This question was so daft it was difficult to answer, so I explained again that the Dingell detail was just part of my job.

Congressman Bill Dickinson, the ranking Republican on the Armed Services Committee, bailed me out. Dickinson, at his most persuasive, recalled taking my side in the C-5A affair. He noted that I'd had some bad experiences with congressmen on the committee who were trying to protect the Pentagon, and he said he could understand my situation in my job. Lapsing into his thickest Alabama accent, he said it was something like a coon hunt. "You take a stick and you jab that coon and he falls out into a pack of dogs and then he has got the option: he can either whip all those dogs and walk off or not."

Dickinson added, speaking to the committee members, "Here's a resource you can use. Mr. Dingell has used him because he is available and Mr. Dingell was smart enough to call him." The dogs stopped barking after that; the subcommittee treated me very considerately during the rest of the hearing.

This agreeable outcome, however, could only cause resentment at the Pentagon. My participation in the Dingell MX investigation had inflamed the old sore spot. On the other hand, the pentagonal New Order had come out of the hearings unscathed, and this gave the military renewed confidence in their power to squelch me.

The next move was not long in coming. Suddenly, on July 2, General Claudius Watts issued a memorandum unilaterally canceling my assignment to the Dingell detail, which had, of course, been set up by agreement between Chairman Dingell and the secretary of the Air Force. The general simply repudiated the civilian agreement. And he made it stick.

General Watts's figurative thumbing of his nose at the politically powerful John Dingell was symptomatic of the ascendancy of the uniformed military. They had captured control of two vital levers of political power: distribution of Pentagonal contract patronage and checking up on how the patronage money was spent.

The military's coup was shrewdly conceived in that they seized control only of the very popular function of government distribution of military contract largess. Unpopular aspects of the system, such as kneecapping the taxpayers and small savers to pay the bills, were left to the civilians. The military acquisition people were the new Santa Clauses of our political economic system.

With Congress under control, for the moment at least, the Santa Claus coup was a stunning success. All that remained was to make sure that no more acquisition horror stories emerged to disturb the tranquility.
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

Postby admin » Sat Nov 02, 2013 2:18 am

15. Carpet Bombing the Constitution

ASSUME YOU ARE the mastermind of a conservative administration in a faraway democratic country. Assume also that you know of a number of scandals brewing in your defense purchasing establishments as well as a potentially quite nasty scandal in your National Security Council involving illegal payments to mercenary soldiers. Your highest military officers, subverting a law passed by the legislature, have just taken power away from the civilian officers who are their legal supervisors. As you see it, your problem is to keep the country from getting upset about these unsavory affairs.

The trouble is, a number of individual employees in your own executive branch think such things are wrong. And they feel conscience-bound to bring the wrongdoing to the attention of the legislative body. That will surely cause a furor that will damage both you and your political party. What do you do to protect your interests?

Perhaps you find the answer in new and much tighter secrecy restrictions on government employees, restrictions even more severe in some respects than any your country has applied in time of war. The best way to stop the leaks, you decide, is to throttle the leakers by making everybody sign the toughest new secrecy oath your legal people can devise.

But you have to deal with troublesome private organizations that spring to the defense of individual rights under the constitution. One of the chief of these is a lawyers' union dedicated to defending unpopular causes and attacking restrictions of civil liberties. And suddenly you have the key. If you can neutralize that lawyers' union by some kind of pressure, you will have disarmed a large and influential part of the liberal Establishment. With your new regulations, you can then hunt down and get rid of dissenters without fear of a public attack.

Of course, as Sinclair Lewis phrased it in the title of one of his novels, It Can't Happen Here. But those who look for comparisons and analogies in everything might imagine some parallels between this fable and the situation in Washington in the fall of 1986.

On October 15 of that year, Chairman John Dingell of the House Energy and Commerce Committee sat down and wrote a long letter to President Reagan. He told the president that he'd been having trouble with his correspondence; most of the officials he had written to either refused to answer or would not answer frankly. It had crossed Chairman Dingell's mind that they could be hiding something.

Secretary Weinberger, for instance. He hadn't answered Dingell's request for a copy of National Security Decision Directive 219 (containing the Poindexter-Packard plan), but his deputy had replied, "Under policies governing the release of classified documents, requests for release should be directed to the originator of the document."

The originator, of course, was Vice Admiral John Poindexter, the national security adviser. The admiral, being busy with various secret arms shipments to the east and south, did not answer his mail. Rodney B. McDaniel of the NSC did, however, write to tell the chairman that it was "not the policy of the National Security Council to provide a copy of classified NSDD's to anyone other than the addressees." He enclosed an unclassified fact sheet on the Packard commission's recommendations for the chairman's edification.

Dingell, of course, was simply testing; he had read NSDD 219 and knew perfectly well what was in it, as he proceeded to tell the president:

Although we do not have a copy of the Directive we requested, we have had an opportunity to examine it. We know that two documents are involved. One is a letter from Admiral Poindexter to Secretary Weinberger and the other is the Directive itself. The Poindexter letter consists of three paragraphs. One of the paragraphs, which is classified SECRET, indicates that the attached Directive is "intended to strengthen your hand vis-a-vis legislation on the Hill." The third paragraph in the document, which is classified CONFIDENTIAL, indicates the "Packard Commission got favorable reviews and this gives the President leverage in dealing with reforms on the Hill." In effect, the SECRET and CONFIDENTIAL classifications were used to conceal an agenda intended to avoid more sweeping Congressional reforms of the Defense procurement system.

Attached to Admiral Poindexter's letter is the Directive itself. Within the Directive, there is a paragraph, classified SECRET, which would effectively negate the current Packard Commission recommendations relating to accountability of defense contractors. That paragraph indicates an intention that it apply only to situations where the contractor lacks "present responsibility." It would not rely on former or ongoing contracts which are already awarded in making decisions relating to suspensions and debarments.

Dingell pointed out to the president that his assistants were violating Reagan's Executive Order 12356 by classifying documents not for national security reasons but in order to withhold information from Congress. The chairman closed by requesting criminal or administrative proceedings against the suspects and renewing his request for the Poindexter-Packard documents.

The president did not reply. He, too, was a poor correspondent.

In the meantime, Reagan's security people were stiffening controls by reviving NSDD 84, "Safeguarding National Security Information," which had been issued in early 1983. This directive gave lip service to the declassification of information "that no longer requires protection in the interest of national security," but it also contained a long list of measures to repress the free flow of information. The three most salient were: greatly increased and wider use of the polygraph, or lie detector, much wider prepublication review of any writing by anyone who ever held a compartmented security clearance, and a new secrecy oath, or "nondisclosure agreement," for people with security clearances.

To impose and monitor the complicated new secrecy oath, the directive gave responsibility to an already existing organization called ISOO -- Information and Security Oversight Office. ISOO, for budgetary and housekeeping purposes, is a part of the General Services Administration, which is also responsible for the National Archives. Thus it was that Steven Garfinkel, who as general counsel for the Archives had stonewalled our subpoenas in the Carter administration, was now head of ISOO.

Garfinkel told me he got his "policy direction" from the NSC but reported directly to Reagan. He said that the NSC staffers who were drawing up the secrecy oaths were Deputy Director Robert McFarlane, Commander Paul Thompson (the attorney who later distinguished himself by finding nothing wrong in the Iran-Contra scam), Brenda Reger (a security expert whose later claim to fame was omitting to seal Oliver North's office to stop him from shredding his records), Major Robert Kimmit, and Kenneth DeGraffenreid.

When Congress had held hearings on NSDD 84, beginning in September 1983, the administration had downplayed its harsh new stipulations. Speaking for the Pentagon, retired Army General Richard G. Stilwell dismissed any immediate concerns about the new gag order (Standard Form 189, or SF 189) by saying: "This requirement will be implemented prospectively -- we will not ask current employees to sign them, unless they are processed in the future for a new level of clearance." This displayed a shrewd insight into the congressional mind: as long as current employees are exempt from the particular outrage, no one will care what happens in the future.

The administration did have problems with the polygraph provision, though. In the House Government Operations Committee hearings on October 19, 1983, Chairman Jack Brooks demolished the NSC's position by producing some damning evidence from the Pentagon itself. It seems that back on December 16, 1982, Dr. John F. Beary, III, then DoD acting assistant secretary for health affairs, had written Secretary Weinberger a memo on the subject of polygraphs:

1. No machine can detect a lie. The machine can only detect stress; however, the stress may result from several emotional causes other than guilt: such as fear, surprise, or anger.

2. Even setting aside the argument that the argument is flawed, there are accuracy problems. We have only been able to locate two scientifically acceptable studies so far.... In one, the polygraph accuracy is 62%. In the other ... 72%. (You get 50% by tossing a coin.) The several studies in the scientific literature that report accuracy rates of 95% to 99% are flawed by inadequate experimental design and sometimes by conflict of interest (people doing the study who make their living from the polygraph).

3. The polygraph misclassifies innocent people as liars. In one study, 49% of truthful subjects were scored as deceptive. In another study, 55% of the innocent were misclassified.

Dr. Beary was supported by Henry E. Catto, Jr., the assistant secretary of defense for public affairs, in a memo to Weinberger the following day:

Cap, I believe we are headed for real trouble if the proposed changes in the polygraph regulation are published, and I know we are headed for trouble if they are approved....

... it is totally disingenuous to try to portray these changes as "updating of regulations" as a search for subversives, or as an attempt to speed clearances. These may all be true, but the fact is that we are trying to stem leaks which hurt the country (which is nothing to be ashamed of) and the press knows it.

Catto wrote, "The polygraph has a whiff of the jack-boot about it," and summarized his plea to Weinberger:

In short, I urge you to end this whole thing at once. As Dr. Beary reported in your December 16 staff meeting, the reliability of polygraphs is in question. They will scare our people. They will infuriate the press. They will hurt Cap Weinberger and, in the process, the President. Let's forget it.

By the time Dr. Beary testified before the Brooks committee, he had found work with a more honest employer at Georgetown University's School of Medicine. He reiterated his views, saying that people who ask, "How accurate is the polygraph?" are asking the wrong question; they should be asking, "Does it work at all?" He added that a stopped clock shows the right time twice a day. At those two instants, it is 100 percent accurate, even though it does not work at all. He then made this parallel:

I have brought with me a polygraph machine today. I would like to show it to you. It has some advantages compared to the one up here on the witness table. It is inexpensive. It is very portable. It has very low maintenance costs. It has about the same range of reliability as the polygraph.

It is a simple coin. It will be right 50% of the time in a dichotomous situation, that is, lie or nonlie.

So much for the polygraph.

The proposed censorship of writing for publication got an equally hard going-over by the committee. Publishers, publishing trade associations, journalists, associations, government unions, and the legal profession all sent impressive witnesses to condemn it. The press joined in. An excellent editorial in the New York Times summed up newspaper opinion:

The secrecy madness will not shut down rumor mills or plug leaks, especially those at the highest levels. But it will deprive Americans of much information that ought to circulate freely between the public and its servants. It will especially chill discussion of national security issues.

The outcome of the hearings was that Chairman Brooks introduced a good, though seriously flawed, bill, the Federal Polygraph Limitation and Anti-Censorship Act of 1984 (HR 4681). It tamed polygraphs and censorship, but it failed to deal with the gag agreements in NSDD 84. It also exempted the CIA and the National Security Agency (NSA), the two most secretive government agencies, from meaningful restrictions. (Testifying before the House Subcommittee on Civil Service, Brooks said of the spook agencies, "We are going to exempt them. They can use thumb screws, water torture, whatever they want to do to prove their people are honest, clean, pristine Americans.") Brooks's bill went nowhere. In a compromise negotiated between the NSC apparatchiks and the congressional staffs, McFarlane gave assurances that NSDD 84 would be suspended indefinitely but it would not be rescinded.

Indeed, the new secrecy oath provision lay dormant for about two years. Then, in mid- 1986, the pressures to put it into effect began quietly. Noted whistle blower Chuck Spinney was given a form to sign by his bosses in the office of the secretary of defense. If he didn't sign, he would lose his security clearance and, consequently, his job. If he signed, he could be framed for phony, contrived "security" violations. Worried about this, Spinney went to the Government Accountability Project (GAP), a public-interest law group, for advice. The GAP lawyers, lacking expertise in arcane security matters, passed the question on to an expert, attorney Allan Adler of the ACLU's national office in Washington. Adler said there was nothing wrong with the form, so Spinney held his nose and signed.

In late 1986 Lieutenant Colonel Jim Wolfe brought a copy of SF 189 to my office and asked me to sign. What was his authority for this? I asked. Jim had a couple of letters from a captain and a major in Air Force security, which said that Air Force members should be "encouraged" to sign the secrecy oath. Now, "members" is a term of art for uniformed members of the Air Force; civilians are "employees." So the terms didn't apply to me, and in any case, I hardly felt encouraged to surrender my rights.

I heard no more about this matter until several months after the Santa Claus coup. Then, on May 13, 1987, Captain David Price, General Watts's assistant, came to my office with a copy of SF 189 and an ultimatum: "Sign this or your security clearance will be taken away." Price also brought a pamphlet (DoD 5200.1-R/AFR 205-l) that made the same threat and, worse, went on to say, "Reluctance to sign an NdA (nondisclosure agreement) will be considered a lack of personal commitment to protect classified information."

I've already lost, I thought. I'm reluctant, and therefore I'm untrustworthy. By this logic, I may even be an espionage suspect. All it would take to expose me is a good Thought Policeman.

When I read the rest of the truly daft regulations, I knew I was in even more trouble. It said that the government could decide, retroactively, to classify information that was already public. Furthermore, the hapless signer of the oath might be held accountable for "indirect" leaks. That is, if I gave a congressman an unclassified government document, and a security officer discovered that the document contained something he considered sensitive information (or that he just wanted to cover up), he could declare that the paper was now classified SECRET. And if the congressman had already given it to a reporter, the government could indict me on a criminal charge!

I was in a box. If I didn't sign, I'd lose my security clearance and be fired. If I did sign, my official ill-wishers could frame me and send me to prison. Thinking I must have missed something, that there ought to be some reasonable solution, I called Steven Garfinkel and put the question to him.

Garfinkel is no man to try to sweeten the pill. He said that the whole point of the oath was to "simplify going after leakers."

Signing the oath would mean that I couldn't any longer communicate with Congressman Dingell's staff without getting the approval of third-party "authorities." Despite repeated questions, verbal and written, the Air Force wouldn't even identify who those omnipotent authorities were. I could almost hear the ghost of Mel Laird's assistant, Colonel Bob Pursley, saying, "Such a paper would be of great value if he were to jump the fence again." Meaning: "Then we could cut him off at the knees." Other voices from the past came back with the same message: Gerald Ford's CIA chief George Bush, Jimmy Carter, Nixon's Alexander Butterfield.

Paragraph 7 of SF 189 read, "I understand that all information (not just classified information) to which I may obtain access by signing this agreement is now and will forever remain the property of the United States Government" (emphasis added). Garfinkel made it clear that "the United States Government" did not include Congress or the judiciary of the United States. A nice distinction.

I called Peter Stockton and told him about this incredible conversation. The upshot was that two days later, on May 15, Stockton, Bruce Chafin of Dingell's committee, and I questioned Garfinkel at length. He was even more weird in person than he had been on the phone.

The Air Force regulation supplementing the gag agreement said that "the SF 189 did not impose any obligation beyond those set by law." If we had a law, we asked, why did we need SF 189?

It was just to "simplify going after someone," Garfinkel said. The White House was very angry over leaks. Garfinkel asked a rhetorical question, "What always upsets people at the White House?" And he found the answer: "Leaks!" (Not illegal leaks, or leaks of classified information, or leaks that might endanger national security. Just any leaks.)

Standard Form 189 spoke of classified information as something "that is either classified or classifiable." What did "classifiable" mean? we asked.

"Arguably, it could be anything," Garfinkel said. Well, he added, information that would be universally understood to need classification even though not so marked.

But the DoD pamphlet on SF 189 had a much broader construction. "Classifiable" material, it seemed, could be classified long after it was published on the front page of the New York Times -- just in order to stick it to the person who'd originally released it. I read Garfinkel a passage from the pamphlet:

Question 8B: Can a signer of the SF 189 be held liable under the provision for releasing information from publicly available sources which became classified after these sources were published, but the sources were never sanitized or destroyed?

Answer: Liability would depend on the circumstances of the case. In the case cited (i.e., Snepp v. United States), it is unclear whether the signer had any knowledge that the information from publicly available sources became classified after the sources were published. Therefore, ISOO cannot make a blanket ruling on such limited information.

Another important point: why didn't the word "classifiable" appear in the secrecy agreement to be signed by contractors' employees, SF 189A?

That, Garfinkel said, was because the Defense Investigative Service (DIS) had wanted to simplify the form. If the word were put in, DIS had advised him, "industry will come back screaming."

Would Mr. Garfinkel remove the offensive "classifiable," which "could be anything" and make the government employee form at least as fair as the industry employee form?

Not a chance.

Another discrepancy: SF 189 said government employees who signed were accountable for "all information," but contractor employees were accountable for "classified information" alone.

A discrepancy, Garfinkel agreed. But he didn't want to try to correct it.

What did "indirect unauthorized disclosure" mean?

Garfinkel didn't know. Maybe it would mean leaving classified material lying around for just anybody to pick up. There are "probably a million" examples, he said.

Garfinkel thought the prosecution was beautifully simple. "No common law, no statutes -- just show the form to the judge and say the agreement has been violated -- you don't have to argue principles."

But surely the accused must have some recourse, some protection against selective, arbitrary, and capricious application of the secrecy rules?

Garfinkel couldn't think of any.

Then what about existing contracts? The stiff new secrecy rules seemed to be a retroactive change in the employment contracts of government workers.

Yes, he said, that was the effect. But it was within the president's inherent powers and his authority as commander in chief.

We pointed out that the president was C in C of the armed forces, not of the nation; furthermore, it was the responsibility of Congress "to make rules for the government and regulation of the land and naval forces."

Another dubious aspect was that the new rules went beyond the DoD and the contractors and applied to most executive agencies and government corporations as well. What about the Department of Energy, Commerce, SEC, and TVA (all part of the Dingell committee's oversight) -- would their employees also be muzzled by the gag agreement?

No problem, Garfinkel said. DoE employees and others throughout the government were signing voluntarily.

Knowing that if they didn't sign voluntarily, they'd lose their clearance and their jobs? That, in Henry Catto's phrase, had the "whiff of the jack-boot about it." We went on to press Garfinkel about the statement that "reluctance" to sign raised questions about a person's trustworthiness and loyalty.

He didn't at all care for this provision, he said, but he had no intention of getting it corrected.

After the interview, Stockton said incredulously, "My God! Reagan's carpet bombing the Constitution just to simplify going after a few leakers. Mostly you."

I protested that I didn't "leak" in the accepted sense of the word. I told embarrassing truths in public when I knew that embarrassment was the only way to right wrongs. About the carpet bombing, I agreed.

Drawing on the interview with Garfinkel, we wrote a long report for Dingell, who passed it on to Chairman William Ford of the House Post Office and Civil Service Committee. Ford assigned it to subcommittee chairman Gerry Sikorski, who began to look into SF 189 vigorously.

Perhaps the most startling of Garfinkel's answers was his claim that Mort Halperin, director of the Washington office of the ACLU, had reviewed and approved SF 189 before it was issued.

I called Anne Zill, president of the Fund for Constitutional Government, whose offices were in the same building as the ACLU, and she talked with Halperin directly. When she asked him if he had approved the secrecy oath, he would say only, "Anne, it could have been much worse." He said this was not the right time to go up against the Reagan administration.

At the May 19 meeting of the FCG's board of directors, Anne Zill reported on this, and I reported on my interview with Garfinkel. Louis Clark, director of the Government Accountability Project (GAP), and Tom Devine, its legal director, were particularly interested in the issue. Tom said he would oppose SF 189 in practice and in his forthcoming testimony on constitutional rights for government employees before Senator David Pryor's subcommittee.

I felt that it was crucial to get the ACLU to repudiate SF 189. For better or worse, most liberal members of Congress accepted the ACLU as the authority on First Amendment questions; they would endorse what it endorsed.

Timing was becoming critical. So far, I'd received nothing but oral threats from low-ranking officers for not signing. But let a general officer put the threat in writing and it was a different game. Once a general's pride, prestige, and arrogance were on the line, the administration couldn't back down. Air Force procedures required giving thirty days' notice in writing of its intent to revoke the security clearance of someone who refused to sign the secrecy oath.

Our first soundings of the ACLU brought the reaction that the new requirements, although undesirable, were quite legal; old curmudgeon Fitzgerald was just being obstinate. So on June 12, 1987, I called Allan Adler of the ACLU. He was mildly sympathetic. Only mildly. He said he agreed that the Air Force interpretation of SF 189 requirements was unduly harsh -- he'd talk to Garfinkel about that -- but that the ACLU, after initial opposition, had okayed the "contract," as he kept calling SF 189. He also thought the government intended to require only new hires to sign.

We then got into a complicated discussion of the legal justification for SF 189. Adler said the president's right to make employees sign a secrecy oath derived from his own executive order and from case law.

I pointed out that there was no mention of the new gag rule in the then-current Executive Order, EO 12356, and that NSDD 84, which the government claimed as its legal basis, spoke of an agreement only. There was no mention of a "contract" and, in any case, a contract was invalid if one party to it signed under duress.

Irrelevant, said Adler. The executive could impose an "adhesion contract" and dictate its terms.

But surely the president couldn't attach illegal or unconstitutional provisions to his contract or agreement?

Wrong, he said. There are no established limits on what the president may attach to such contracts in the national security area.

It was quite interesting to find the ACLU in bed with Robert Bork. Adler's position recalled Bork's argument at the American Bar Association's 1979 workshop on law, intelligence, and national security. Bork suggested that it was irrelevant to argue that extralegal violations of an individual's rights for "national security" reasons were unconstitutional. "The question is," he said, "in the circumstances, given the exigencies of the situation and so forth, is there a constitutional right?" Answering himself, he said, "Constitutional rights vary enormously according to the circumstance, according to government need, according to safety, according to all sorts of things."

In other words, if the government has the need to perpetrate some unconstitutional outrage, it may do so. Robert Bork and the ACLU, in the SF 189 case, would sanction it.

Adler went on to lecture me on the importance of working with the "right people" on the Hill if I wanted anything done. Dingell wasn't one of them; Nunn, Stokes, Boren, and Aspin were.

He ended the conversation with a little tutorial on the case of Frank Snepp, reading a "dictum" by Harold Koontz and Cyril O'Donnell, people I'd never heard of, to the effect that the executive could do whatever it wanted in national security matters, and giving me a list of congressional hearings that would show me the error of my ways.

I thereupon got copies of those hearing transcripts and spent a weekend reading them. One witness who struck me as especially well informed and articulate was Jack Landau, then executive director of the Reporters' Committee for Freedom of the Press. He had testified with reason and vigor against NSDD 84 before Jack Brooks's subcommittee on October 18, 1983. But in the course of four and a half months, something strange seemed to have happened to him. When he appeared before Pat Schroeder's subcommittee on February 29, 1984, he was meek and noncontroversial.

When I called Landau to find out the reason, he explained that he and practically all of the working press had wanted to repudiate NSDD 84 once and for all, but they had run up against the power of the ACLU. He said Mort Halperin had "gotten to" the important media editors and persuaded them to live with NSDD 84. Halperin had done the Reagan administration's work for it. "I couldn't take on Mort," Landau said bitterly. "I hope he's happy with what he has."

Meanwhile, Tom Devine and Judge Joe Kennedy of GAP and Dina Rasor of PMP had been talking with Allan Adler to find out why he had swallowed the Reagan administration line. These were the points Dina derived from Adler's apologia:

1. Fitzgerald had signed one security agreement; why make a fuss about the new one? It had been carefully worked out by the Reagan security experts.

2. The fact that the contractors' secrecy agreement differed from the employees' was explained by their being derived from two different executive orders.

3. We were working with the "wrong people." We should be working with the intelligence committees.

4. The ACLU Washington office had initially been in a "big fight" with the administration over NSDD 84 but had been forced to give in.

This was such a collection of surmises and misinformation that I had to answer it point by point.

1. I'd never signed any secrecy oath. Why was Adler pushing such a falsehood?

2. The inequality of the two gag rules was created because, as Garfinkel had put it, "industry would come back screaming" about the harsher version. Further, no one had argued that either gag agreement was required specifically by an executive order, much less by statute. Garfinkel and other authorities insisted that the legal basis was NSDD 84.

3. The House Intelligence Committee had never held hearings on NSDD 84 or SF 189. But one Senate committee (Governmental Affairs, which has jurisdiction over civil service matters) and two House committees (Government Operations and the Post Office and Civil Service's Subcommittee on Civil Service) had.

4. The ACLU's "big fight" wasn't apparent in the records. Halperin had appeared before Congresswoman Schroeder's committee in February 1984, but only to oppose prepublication review of writings by government officials. Even that opposition was much qualified: he didn't want the words of senior officials reviewed and "censored" by junior bureaucrats. For instance, he wanted the wisdom of Harold Brown's writing in an op-ed piece to be undefiled by government scissors. Anything else would be a "serious threat to the First Amendment." He failed to mention any concern for the First Amendment rights of junior officials or whistle blowers.

Pursuing this attempt to look into the mind of the ACLU, I looked at Halperin's 1977 book, Top Secret: National Security and the Right to Know. There he wrote (page 65):

In addition to legislative categories for mandatory disclosures, Congress should designate certain kinds of information as presumptively secret, because they are not in general important for public debate, while their release could have detrimental effects on national security.

"Presumptively secret" sounded a lot like Reagan's ineffable "classifiable information." Perhaps the Reagan team had stolen the idea and changed the name. Halperin's list of such mysteries included:

1. Weapons systems: Details of advanced weapons systems design and operational characteristics.

2. Details of plans for military operations.

3. Intelligence methods: Codes, technology, and spies.

The first category was the scary one. If it had been in place and rigidly enforced under the ex post facto "classifiable" lunacy, the Pentagon underground would never have been able to disclose dangerous deficiencies in some of our advanced weapons' systems. We'd be faced, hypothetically, with having to go to war with faulty planes and missiles that didn't work, with nobody the wiser. And Halperin's rules could have me in prison, along with Dina Rasor and a lot of other good people.

Halperin's other rule was that senior officials know best: "presumptively secret" information can be released "if responsible officials are satisfied that there is a strong need for the information for public debate on a major issue" (p. 65). This is a corollary to his congressional testimony: all senior officials believe that "everything is classified unless they decide it ought not to be classified."

It is hard to imagine the Reagan administration taking its cue from an ACLU lawyer, but the Defense Department regulation of April 28, 1987 (DoD 5200.I-R) echoed Halperin's ideas:

Classified information may be made available to individuals or agencies outside the Executive Branch provided that such information is necessary to the performance of a function from which the government will derive a benefit or advantage, and that such release is not prohibited by the originating department or agency.

From all this I decided that Ken Lawrence had been right. Lawrence, a civil rights activist, in the fall of 1981 wrote a sixteen-page memorandum to "people concerned about the decline of civil liberties in the U.S." Titled "Subject: Morton Halperin, Jerry Berman, the American Civil Liberties Union and the Campaign for Political Rights," the memo claimed that:

When ACLU representatives are convinced that the political climate is such that the legislatures and the courts won't respect constitutionally guaranteed rights, they seek to strike the best possible compromise, sacrificing some rights (or the rights of some) in order, as they see it, to preserve others, rather than to take a "purist" position, which many of them ridicule.

Hardly the views of an Alexander Hamilton, a Clarence Darrow, or a Martin Luther King. Would any of them have made a quiet deal -- okayed the contract, as Adler put it -- on civil rights with Ronald Reagan?


D-day for the Air Force assault on Fitzgerald came on July 2, 1987, at five o'clock in the afternoon. Lieutenant General Claudius E. Watts III sent two of his men to my office to deliver two messages. The first, as I mentioned at the end of Chapter 14, canceled my assignment to assist Congressman Dingell and his committee. The second revoked my security clearance on thirty days' notice and, practically speaking, removed me from my job.

The timing of the delivery was intended to be devilish shrewd. It was just minutes before the beginning of a three-day Fourth of July weekend, after which was scheduled the biggest media event in years: the public testimony of Lieutenant Colonel Oliver North in the Iran-Contra hearings.

The attempt to bury me silently might have worked if it hadn't been for the dedicated young people at the Project on Military Procurement. Friday, July 3, was a holiday in Washington, but Dina Rasor, John Riley, and Danielle Brian-Bland hand-delivered press packets on the Pentagon's plans to "get rid of that son of a bitch Fitzgerald," as Nixon had said so long before, to media offices all over town.

Because of the holiday, most of the reporters on duty were junior people. Veteran reporters might have dismissed this as just another Fitzgerald-in-trouble tale, but to the younger ones it seemed a significant story on a deadly dull news day. As a result, Associated Press and United Press International put excellent stories on the wire to appear in just about every Sunday paper in the country. The New York Times and the Washington Post interviewed me by telephone and wrote their own stories. The Cleveland Plain Dealer carried its hard-hitting story with a banner headline on the front page. Once again the Pentagonists had outsmarted themselves.

In response to questions raised by Representative Barbara Boxer, Reagan's national security adviser, Frank Carlucci, wrote a letter (September 21, 1987) summarizing the history of "the current controversy over Standard Form 189," as he put it. Carlucci first noted that the controversy "began when Air Force Employee A. Ernest Fitzgerald was first asked to execute the non-disclosure agreement in January 1987." The meeting with Garfinkel, and the subsequent letters from members of Congress to the White House, the Office of Personnel, and the ISOO, questioned the legality of certain things in SF 189. Carlucci continued:

These letters were also released to the news media, which commenced a series of news articles, stories, op-ed pieces, and editorials on the nondisclosure agreement, almost all of which contained serious errors of fact. This media attention, in turn, led to constituent correspondence to other members of Congress, more congressional inquiries, more media attention, etc. Within a couple of months, the situation had snowballed into a major controversy. Fueling the controversy have been a number of misrepresentations and misunderstandings about the SF 189 that have appeared repeatedly in both the media accounts and congressional pronouncements.

Carlucci did not back up his charges of "serious errors of fact" or "misrepresentations," nor were any ever revealed, but otherwise his account was a fairly accurate summary.

The ACLU continued to play a dubious role. Newsday reporter Marie Coco, working on a story about SF 189, killed it when Allan Adler told her (according to Dan Sweeney of GAP, who had been working with Coco) that the form was "underhanded and odious but legal." By July 7, when he talked with Dina Rasor, Adler was hedging a little more. He said that no First Amendment rights were involved in SF 189 and that no citizen had any right to a security clearance, but since 1already had one, I had certain procedural rights that had to be observed before it could be taken away.

On July 8 I had an interesting conversation with Kirk Robertson, assistant to Senator David Pryor. He said that the senator wanted to help us, but he warned me that the ACLU seemed to be running a sub rosa lobby against us. Someone from ACLU had called Pryor's office to argue that SF 189 was not illegal.

That same day Russ Hemenway, chairman of FCG, called to report a sign of moderation at the ACLU: Halperin had said that GAP and the ACLU were negotiating the term "classifiable" with ISOO, and he thought they'd get a compromise that would persuade me to sign SF 189. Another note of some interest was Kris Kolesnik's discovery that Garfinkel's supporting cast in approving the standard form had been Ed Meese's assistant attorney general, Richard Willard, Andy Feinstein of Pat Schroeder's staff -- and Allan Adler.

In the meantime, the ACLU was gradually feeling the pressure. Marion Edey of the FCG board rallied some of its financial supporters to our side and persuaded Ralph Nader to make calls to Halperin and Feinstein. The GAP lawyers negotiated with the ACLU for two weeks. The result was a July 16 memorandum from Adler, which contained some fairly tough dissection of SF 189. That was a short-term tactical benefit for us, but what drew my attention in the memo was a fascinating constitutional issue. Adler wrote:

The ACLU finds no inherent constitutional barrier to an Executive Order requirement that government employees and other individuals, as a condition of being granted access to classified information, must sign an agreement which (a) imposes an obligation not to disclose such information without authorization and (b) is legally enforceable in a civil action for breach of contract.

Here the ACLU seemed to be taking Robert Bork's advice that the government can do anything not expressly forbidden in the Constitution. My friends and I argued that the government can do only those things expressly authorized in the Constitution. Was the ACLU really willing to set aside the Ninth and Tenth Amendments?

Another salient constitutional point at issue was that of "unauthorized disclosure," especially in regard to giving information to Congress. Heretofore all members of Congress had been considered "authorized" to receive information, classified or not, from executive branch employees. By reason of their election, members of Congress are presumed "trustworthy" and therefore have "security clearances" and access ("need to know," as determined by the aforementioned nameless "authorities") to classified information in accordance with the rules of the House and of the Senate, which restrict distribution of some classified information within Congress.

By default, many members of Congress had acquiesced in the executive's control of "classified" information (under Reagan, almost everything important or embarrassing). The Reaganites were seeking to make formal the substitution of executive branch rules for congressional rules governing access by members of Congress. The Reagan team was trying to keep Congress in the dark by imposing its own rules under which "authorization" meant specific approval by the executive branch of each specific communication to Congress.

Steven Garfinkel underlined this in a Boston Globe interview on September 13, 1987: "Garfinkel maintained ... that legislators must demonstrate a 'need to know' before receiving classifiable information. 'No worker may provide classifiable ("it could be anything") information to Congress without first receiving the approval of the agency he works for,' Garfinkel said."

The ambiguous behavior of the ACLU aroused the interest of civil rights activist Mae Churchill, and in August she wrote Ira Glasser, the ACLU's national executive director, with some questions. (Churchill later packaged her exchanges with Glasser and distributed the package as widely as possible to First Amendment defenders.) Did the positions of the Washington office reflect those of the national board? Did the national board approve them? Did individual affiliates have any voice in such policy decisions? How did the Washington staff arrive at the positions it took in dealing with the administration and as "spokesman for the ACLU"? Then, the most pointer question of all: "Why has government secrecy been given tacit approval in ACLU's name?"

She was defining the second major issue that had arisen out of the controversy over SF 189: was an institution known as a dedicated protector of civil and individual rights being compromised by a few men playing an insider game?

On October 19 Glasser belatedly replied with a Machiavellian answer. He did not deal with the queries about policy formulation or accountability, nor did he venture a reply to the question about tacit approval of government secrecy. What he did do was paint a highly imaginary picture of a fearless ACLU springing early into battle with the administration over the secrecy agreement. Consider this:

We raised substantial objections from the outset both with respect to pre- publication review requirements and with respect to the overbroad definition of "classifiable" information, citing, in our July 16 memorandum, the potential for "overreaching ex post facto interpretations which would illegally and, we believe, unconstitutionally broaden the government's authority under this agreement to reach disclosure of unclassified information and other communications that are not prohibited by law (emphasis added).

The memorandum goes on to oppose SF 189 and urge its rescission. Our letter of July 28 to Stephen Garfinkel responding to ISOO's draft rule, which purported to address the concerns in our July 16 memorandum, repeats those concerns and opposes the draft rule as insufficient. The letter concludes by urging ISOO not to proceed with the promulgation of the draft rule.

"From the outset"? SF 189 had been around since 1983, but the first detectable evidence of any ACLU objection (save for Halperin's narrow dispute of the prepublication review) came in Adler's memorandum of July 16, 1987. By then, of course, there was all that accumulated evidence that the Washington ACLU had "okayed the contract."

Glasser then mixed fiction with sarcasm. His letter to Churchill went on:

Even if, from your distant outpost in Pacific Palisades, you are unaware of the firm and steady opposition of the ACLU to the singularly oppressive qualities of SF 189, it seems to me impossible to fairly read our memorandum of July 16 and the follow-up letter of July 28 and nonetheless conclude that the ACLU "raised no substantial objections" (emphasis added).

Having been in no "distant outpost" but in the Pentagon attic in the middle of the storm, I had plenty of reason to believe that the "firm and steady opposition" had been very late and unsteady. In fact, there was good reason to think that the ACLU was still privately content with SF 189. In late July Adler had told Tom Devine that the SF 189 storm was all just because "Ernie doesn't like secrecy agreements. Ernie wants to attack secrecy agreements and the administration." He added that the only real problems with the agreement were vagueness in the term "classifiable" and conflicts with provisions of the whistle blower law.

By then Adler was a step behind the administration, which had admitted some errors. In a series of changes published in the Federal Register during July, it had backed down on the notion of holding employees accountable for "all materials" and had narrowed that to "classified materials." And it had dropped the ambiguous provision holding employees accountable for information that "may have" come into their possession.

Nevertheless, in October the Reagan team pushed its security fixation to the point of absurdity. Representative Jack Brooks had requested some information from the Department of Energy in order to carry out the oversight functions of his committee. James Herrington, the DoE secretary, then had the foolhardiness to send a functionary to Brooks with an SF 189 that was to be signed before he would hand over the information.

The administration had chosen the wrong man to push its bad idea on: Brooks's blast was majestic. He wrote that this act "deeply offends the basic constitutional framework of the separation of powers," and that "such a contract is incompatible with the First Amendment to the Constitution, regardless of who is asked to sign it."

When Representative Gerry Sikorski's subcommittee held its hearing in mid-October, I testified. No representative of the ACLU was invited to appear, but Allan Adler was present and busy in the corridors explaining to reporters or anyone else who would listen that SF 189 was not all that bad. During one break he tried to trap me in the presence of some Air Force judge advocate general (JAG) officers -- military lawyers -- and challenge me to say whether I'd support any sort of secrecy at all. Then, as the JAG officers scribbled away, he made his own case for secrecy. The ACLU was still bringing up the rear in this fight against "the singularly repressive qualities of SF 189."


In my difficulties I had a lot of generous and heartwarming support. Senator Grassley and Kris Kolesnik went to see Howard Baker on my behalf; senators Proxmire and Pryor offered support; and representatives Sikorski, Boxer, and Aspin demanded an explanation from National Security Adviser Carlucci. When the military prepared to drop the axe on me, John Bodner requested and got a hearing before Judge Bryant to argue that the administration hadn't provided the substantive answers (which they were required to provide) to our constitutional and legal questions about the gag order. The Pentagon then extended my deadline for signing by two weeks.

Just a few days earlier the National Federation of Federal Employees (NFFE) had filed a suit challenging the gag agreement in the U.S. District Court. The NFFE suit was assigned to Judge Oliver Gasch, who had a reputation for more or less blind support of the federal national security apparatchiks. Sensing an opportunity to escape from John Bodner and constitutionalist Judge Bryant, the administration decided to stage the whole legal fight in the much more favorable climate of Judge Gasch's court.

In the meantime the American Federation of Government Employees (AFGE) had filed a similar suit in which an Air Force cryptologist named Louis Braase was a central figure. Braase had an unblemished record of thirty-two years of government service. A highly regarded teacher in the field of cryptology, he had held a Top Secret clearance for most of his career.

His only crime was that he had stood up for his constitutional rights against the gag agreement. The colonel he worked for, saying that in his position Braase had no constitutional rights, suspended him from his duties and sent him home. When public and congressional pressure forced the Air Force to back down and allow Lou to go back to work at the Air Force base, he was restricted to nonsecure areas and given routine clerical work.

A man of high character and exemplary record, Braase was ideal for a test case. My handicap was that my reputation had been scarred (the stab wounds were largely in the back) by successive generations of politicians and brass. And unlike me, Braase had never suffered the animus of the ACLU or Ralph Nader's lawyers. That made it possible for a redeemed Nader to make the beau geste and send one of his bright young lawyers, Patti Goldman, to represent the congressmen who had joined the legal fight. Ralph's return to the fold restored my faith in the perfectability of man. The Halperin-led ACLU sat on its hands, though.

The next move was led by Senator Grassley, who got Congress to attach to a spending resolution for fiscal 1988 a provision forbidding the executive branch to implement the new secrecy agreements for the first ten months of 1988 and allowing federal employees to communicate directly with Congress.

When the suits were heard in Judge Oliver Gasch's court, the executive branch argued that the president has "plenary" responsibilities and power in the national security area ("plenary" in this context means "absolute" or "unqualified"). The administration also brought as a witness an Air Force general working for the CIA, who said flatly that the intelligence community would not abide by the provision outlawing the gag agreement in the Continuing Resolution (the omnibus substitute for appropriations laws) passed by Congress and signed by the president.

In a judicial opinion laden with scary implications, Judge Gasch, on May 27, 1988, ruled against the congressmen's suit. He agreed with the contention that the president has "plenary powers" over national security matters, and he placed no bounds on the domain of national security. He cited NSDD 84 and "sovereign prerogative" in ruling that any non-disclosure agreement for federal employees was not subject to existing laws. And he found "particularly offensive" Congress's assertion of its right to receive information directly from government employees despite the constitutional right protected by Title 5, Section 7211, of the U.S. Code (the law passed in reaction to Teddy Roosevelt's gag order).

Thus the administration and its judicial ally had done everything in its power to prevent citizens who work for the government from transmitting any embarrassing information about abuses of trust to their elected representatives in Congress.


How had the great security campaign evolved in the Reagan years, and to what purpose? Early in the administration, Assistant Attorney General Richard Willard, had headed a commission on "leaks" that had, in part, concluded:

The unauthorized disclosure of classified information has been specifically prohibited by a series of Executive Orders dating back at least to 1951. Such disclosures also violate numerous more general standards of conduct for government employees based on statutes and regulations. It is clear that any government employee may also be discharged or otherwise disciplined for making unauthorized disclosures of classified information. Moreover, in virtually all cases the unauthorized disclosure of classified information potentially violates one or more federal criminal statutes.

Furthermore, Willard said, laws already on the books could be used to "protect" against the news media: "These laws could also be used to prosecute a journalist who knowingly receives and publishes classified documents or information." The report did not really deal with the problem of disclosures to Congress.

There was one rather startling and iconoclastic admission. The commission found that "some of the most embarrassing leaks do not involve classified information at all."

In sum, the commission felt that protection of classified information and violations of security could be easily treated under existing law. Even Air Force Regulation 205-1, which put SF 189 into effect, argued, though insincerely, that "SF 189 does not impose any obligations beyond those set by law."

Then what was the source of this drive for a new and troublesome secrecy requirement, overlaid on a perfectly effective body of law? The evidence offered by Stephen Garfinkel, certainly an authoritative source, suggests that the idea was to have a handy instrument for summary punishment on the vaguest of charges. Recall that the White House was worried not about security leaks specifically, but about leaks in general, including "indirect release" of "classifiable" information.

As John Dingell wrote in his letter of May 18, 1987, to Congressman Ford, Garfinkel said that SF 189 would "simplify going after someone." How? In our interview he explained: "No common law, no statutes -- just show the form to the judge and say the agreement has been violated. You don't have to argue principles."

In other words, no due process.

In France, under the old monarchy, there was a legal instrument called a penal lettre de cachet. By the king's order, any subject could be seized and, with no opportunity for defense, sentenced to imprisonment or transportation. The king seldom knew anything about the issuance of such letters, they were signed by a secretary of state, and they served as a swift and secret way to get rid of the government's enemies or dangerous writers. It took a revolution to abolish them. To repeat Stephen Garfinkel's formulation, "No common law, no statutes. Just show the form to the judge and say the agreement has been violated."
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

Postby admin » Sat Nov 02, 2013 2:45 am

16. Operation Ill Wind

THE PRO-ECONOMY WARRIORS on Capitol Hill seemed to have run out of energy and spirit by early 1988. They were beginning to lose battles to the counterattacking big spenders. And the freedom fighters in the Pentagon underground were so thoroughly demoralized that many buried their weapons for use at some more favorable time. Those of us in the public Resistance found ourselves isolated and powerless. In an election year, when no campaigning politician wants to be attacked as weak on defense, our prospects looked poor. At that time, we had no inkling of the "ill wind" to come that might -- just possibly -- blow the nation a great deal of good.

In the meantime our cause was suffering a heavy cannonade in studies by noted professors at great universities, "defense intellectuals," and experts at prominent think tanks -- all, apparently, rented out to the defense establishment. Washington does not produce much in the way of ideas, but it does consume them. The city has nothing like a Harvard or a Stanford, but it has a thousand columnists and reporters who must turn out copy containing some kind of thought content every day. A Rand Corporation study, a Harvard report, or an article in Foreign Affairs is quickly appropriated, simplified, and popularized for tomorrow's newspaper or next week's magazine article. Thus an arm of the government that can rent a think tank or eminent professor can produce scholarly justifications for practices that might cause lifted eyebrows at a meeting of Mafia dons. The previously cited case of misinformation that traveled from the Defense Department to Professor Kelman to columnist George Will is a good example of propaganda that became "scholarship" that became punditry.

One practice that needed justification was a wonderful Pentagon handout of $5.634 billion -- that limit imposed by Congress for 1988 to subsidize about one hundred favored contractors. (As a rule, the bigger the contractor, the bigger the grant.) The thin excuse for the spending amounted to little more than some impressive-sounding labels: independent research and development (IR & D) and bid and proposal expenses (B & P).

When Senator Proxmire questioned this and suggested that the Pentagon ought not to be giving such birthday presents, the Pentagon struck back with a heavyweight draft report produced on the Rand Corporation's letterhead. The Rand draft report was widely distributed, especially on Capitol Hill, in the spring of 1987. The DoD wanted its case dignified, so the corporation performed as requested, with arguments so devious and full of syllogistic error as to make Richard Nixon blush with envy. In effect the Pentagon's acquisition spending czars had rented the Rand Corporation's letterhead.

Rand proposed looking at the size of each grant as a measure of the grant's "surrogate" contribution to national security: the more money laid out in grants, the more national security we got. (But did we get 100,000 tons of national security, FOB, for each billion we paid?) Of course, we needed as much national security as we could get, presumably to store away in the Pentagon basement for a rainy day.

After the report was published, my associates and I asked the Rand experts if they could come up with an example of benefit the country had received from the billions of dollars spent on the IR & D and B & P boondoggle. They couldn't. That fact, however, didn't stop Robert Costello, the Poindexter-Packard acquisition czar, from sending his people to Capitol Hill to argue, on the basis of the Rand absurdity, for removal of the ceiling on the IR & D and B & P birthday gifts.

It worked. The June 6, 1988, issue of Federal Contracts reported (page 1108): "For the first time since 1983, the House Appropriations Committee has approved a funding measure for the Defense Department that does not contain a ceiling on independent research and development and bid and proposal costs."

This breakthrough was aided by a barrage from the MAC Group, hirelings of the military contractor trade-and-lobbying associations, the Aerospace Industries Association (AIA), the Electronic Industries Association (EIA), and the National Security Industrial Association (NSIA). The "MAC Report" (from the initials on its letterhead) was more officially -- and stultifyingly -- titled "The Impact on Defense Industrial Capability of the Changes in Procurement and Tax Policy, 1984-87." It was prepared by a group of obedient scholars, prominent among whom were Harvard Business School professor Robert N. Anthony, former comptroller of the Department of Defense, and his colleague Joseph L. Bower.

The report was a fairly inept attempt to roll back the various reforms in Pentagon spending habits that had been effected between 1984 and 1987, reforms that had been essentially halted by the Poindexter-Packard coup after modest progress in the right direction.

The report's "analytical" approach was based on a highly suspect presentation of cash flow. (It should be explained that the contracts used for examples were asserted to be real ones, though they were not identified.) Ordinarily, a cash flow statement is the simplest kind of financial analysis; every small businessman who ever got a loan from a bank knows how to put one together. A cash flow analysis does not contain accrued or booked revenues, and it doesn't show accrued costs. What it does display are cash collections and disbursements. Cautious bankers know that money owed, or "accrued," to the business might never turn into cash, since not everybody pays his bills. The bankers also want to make sure that the business has enough money coming in to pay current bills plus a sufficient surplus to make loan repayments to the bank.

Professor Anthony, in his textbook Management Accounting, said this about cash flow statements: "Transactions that do not involve a flow of cash are eliminated." Yet in the MAC report he changed the rules for the big contractors. In its "cash flow model logic," the MAC group showed presumed cash collections on the credit side of the ledger and presumed "incurred" costs on the debit side. I say "presumed" because the figures were simply furnished by the contracting companies and may or may not have had anything to do with reality.

When I asked Russ Aney, one of the authors of the report, what was meant by "incurred" costs, he said that meant accrued or booked costs. This altered the meaning of "cash flow" dramatically. Many of these costs are "accrued" on the contractor's books months before he pays the bills for them, so the contractor's cash requirements looked much larger than they really were. This didn't seem to bother the faculty members because it bolstered the case they'd been assigned to bolster.

The other noticeable feature of the report was its candor. It made no attempt to hide the fact that it was trying to justify larger IR & D and B & P handouts for the giant contractors.

One of MAC's loudest complaints was about "lower allowable cost recovery." I asked Aney what he was really talking about. I asked him if the "lower" part meant recent congressional restrictions and the "allowable cost" part meant paying room and board for dogs like Fursten, sending flowers, paying strolling musicians, and the like. He said yes.

I then asked him whether the companies were still indulging in these amenities even after the government stopped paying for them.

"What other assumption could one make?" said Aney.

In the upper brackets of executiveville, it's important to maintain the quality of life even if the ungrateful taxpayer won't foot the bill any longer.

Finally, from Harvard, came another fearsome broadside: the MAC report warned that if the 1984-1987 reforms were "allowed to run their course," we could expect the dire result of "increased competition." And that would lead to the worst of consequences -- "the potential for a low-cost culture." Not a single strolling musician in sight.

The bombardment was joined by Georgetown University's Center for Strategic and International Studies (CSIS), which delivered a treatise titled "U.S. Defense Acquisition: A Process in Trouble." As the title suggests, the authors conceded what nobody in his right mind could deny: there were troubles in boondoggleland. "There has been influence peddling. Kickbacks have been made. The revolving-door syndrome has been abused. Patently unrealistic promises have been made." And so on. CSIS even dared to admit that some of the spare parts and support equipment were overpriced, but it went on to rationalize such scandals by writing that the tools were bought "in strict accordance with regulations." There was no mention of the glaring flaws in the regulations (see especially Chapter 12), much less any proposal for correcting them.

Did Georgetown's staid Jesuit fathers know what was being committed under their aegis? The report produced a remarkable piece of flimflam when it blamed the soaring weapons costs of the Reagan years on "program instability," which was further explained as "the cost of stretch-outs." According to this bit of sophism, alterations in a weapons funding program in midstream drove costs higher than expected.

As I described in Chapter 10, however, the astronomical unit cost increases -- both realized and projected -- were recognized by the Pentagon's advance planners during the period January to May 1984, when the Reagan spend-up was going full steam. Out-of-control contractor costs and even wilder projections of costs to come drove unit prices up so steeply that even the Reagan money pump fell behind.

And the CSIS solutions? They were, it turned out, based on the false gospel of David Packard, that is, to retain and attract "professionally competent (military) acquisition personnel" and then to appoint not one, but two blue-ribbon commissions!

The first of these commissions was supposed to "examine the role of Congress through all stages of the acquisition process." That, of course, could postpone any real reform until doomsday. The second commission, charged with monitoring progress of the reforms and restoring "national confidence," would have a life of five years in the grand tradition of Chet Holifield.

When I finally reached the end of the CSIS report and read the list of its creators, I had a sudden epiphany. The turgid style and the abundance of error were explained: the chairman was none other than that old apostle of pork, James Schlesinger. I noted sadly that the co-chairman was Representative Les Aspin. I hoped he was there only as a reserve piano player and that he didn't know what was going on upstairs.

Finally, among the scholarly artillery, came the sound of Big Bertha. Under the copyright of the President and the Fellows of Harvard College, the Harvard Business School Press published The Defense Management Challenge. Its principal author was my old friend and associate, Dr. J. Ronald Fox, the Jaime and Josefina Chua Tiampo Professor of Business Administration at the B-school. Along with his academic credentials, Ron could point to almost thirty years of experience in Pentagon procurement.

I had met with Fox and his assistant author, James Fields, and had described some of the lessons to be learned through case studies of overpricing on tools and spare parts. On my recommendation, Dingell's investigators and the PMP had opened their files to Fields. I expected a worthwhile analysis that would get to the roots of procurement troubles.

When I saw the finished book in June 1988, I was momentarily gratified to find that the section "problems in the Defense Business" began with a look at overpriced spare parts and tools. But after five and a half lines the sag set in. I was faced with a warning of sophisms to come: "These allegations cause many Americans to question DoD's management capability as well as the integrity of the defense industry."

Dismayed, I wondered if Major Ketcham and Colonel Roberts were co-authors. Cover up the truth, they suggested, so the taxpaying suckers won't get wise:

Although (the media) rarely -- if ever - explained that the high prices frequently had to do with the allocation of overhead costs and the rigor of military requirements as much as or more than they do with implied contractor overcharges.

Government regulations require that overhead costs (i.e., costs associated with more than one program) be distributed equally among a contractor's products. Under this system, prices for small items are artificially inflated and those for large items artificially reduced. Overhead costs have to be absorbed one way or another, but if the allocation system results in pricing anomalies and is not adequately understood or explained by the media, the public is misled.

Could Professor Kelman's snake oil still have buyers? In dismay I called Chuck Spinney, who said he had reviewed Ron's manuscript and had advised Ron to delete the "equal allocation of overhead" fallacy.

Colin Parfitt followed up on the very queer "government regulations require" line. Where were those regulations to be found?

They were in the FAR (Federal Acquisitions Regulations) or the DAR (Defense Acquisition Regulations), Ron said. "You can look them up."

They weren't and you couldn't.

The fact that the Pentagon and its academic footmen had to keep the old lie alive suggested that none of the DoD flacks had enough imagination to invent a new lie to justify exorbitant prices. There was no defense.

I still believed that Ron Fox was a basically honest man, but I had no choice except to confront him about the distortions in his book. With some mortification, he said I should remember that "distributed equally" could have several meanings. It might mean equal percentages of overhead. Brightening, he said that was, in fact, what he'd meant all along.

Just what we'd always been talking about, I said. Isn't it true, I asked, that the overhead, fat and all, is distributed proportionately to measures of direct costs -- hours or dollars -- of the products in question? He agreed.

Fox would not agree, however, that one major thesis of his book -- namely, that Pentagon critics use false reports because they are against national defense -- was wrong. A close reading of The Defense Management Challenge revealed where the cheating really lay. Consider page 31:

In some cases, the news reports contained outright distortions, by omission. The $3,046 coffee maker was designed for the huge C-5A aircraft, which carries as many as 365 people. Major airlines have purchased similar coffee makers for $3,107.

This has to be taken as a blatant attempt to mislead. First, the C-5A pot was priced at $7,622. (After Lockheed was publicly embarrassed, the replacement pots came in at "only" $3,046.) Second, it would be dangerous flying if anybody tried to cram 365 people into a C-5A. Third, the coffee pot in question is a ten-cup model.

The authors went on to damn "the inaccurate or incomplete reporting by the news media" and "the theatrics of a congressman or senator" as he displayed a pair of grossly overpriced duckbill pliers. "Sensationalism and entertainment," said the Harvard report, an attempt "to discredit efforts to achieve a defense buildup." After such amazing misrepresentations, one can only ask whether the Harvard motto Veritas has lost all meaning.

The hero of the book was, predictably, David Packard: "one of the ablest Pentagon managers" (page 134) and "dedicated to improving the acquisition process" (page 49). And there are, indeed, many noble Packard quotes that sternly denounce contractor inefficiency and non-enforcement of contracts. The authors did not point out, however, that these were hindsight quotes, delivered as Packard was leaving office and were the diametric opposite of Packard's actions. The ruinous effects of Packardism in office were not considered: the "capable" officers in charge of programs (and up to their ears in money), the Poindexter-Packard "streamlining" that meant "contract now, ask questions later." "Self-policing" meant looking the other way while the scoundrels make off with the loot. And how could a book purporting to discuss "the defense management challenge" overlook the fact that the streamlining has resulted in a huge shortfall between the President's fiscal guidance, much less what funds Congress will supply, and what the Pentagon plans to spend? And the most painful part is that the fighting part of the Air Force certainly -- and perhaps the other services as well -- will emerge from the $2 trillion Reagan spending binge smaller than it was before Reagan.

The mischief that such irresponsible academics can do is not immediately apparent. The effects of false teachings on the students don't show up for years. But the bad thinking in those specialized publications and university press books does trickle down to unsuspecting journalists. It may influence politicians as well. In the 1988 election year, the for-rent intellectuals around Harvard Square were being sought out by the spending coalition because of their presumed closeness to Democratic candidate Michael Dukakis.

In spite of my feelings about the book, I went to the publication party for The Defense Management Challenge. I got there late, but I soon found that the party had split into two factions; when Ron Fox was introduced as the author whose book would counter the criticism of Pentagon buying habits, the establishment Pentagonists cheered. The underground types just sulked. Looking around at the crowd, I had the depressing feeling that no matter who won the election, the same corps of rationalizers would still be there in the Pentagon, running the same old sick system.

While Colin Parfitt and I were driving home that night, I was reminded of Colonel Joe Warren's long-ago comment on an earlier shuffle of administrations: "Same old whores, just new beds."


Even with the apparent success of the big push to make Pentagon management look respectable and the decline in morale in the economizers' ranks, I was still hopeful of a revival in our fortunes. Despite the propaganda barrage, real improvements in Fort Fumble's wasteful system were minimal. The first new crack in the facade would cause the latent public discontent to erupt again.

On May 31, 1985, communications specialist Richard Pollack had reported, in a privately distributed letter, pollster Peter Hart's assessment of a new trend:

There has been a dramatic change in public thinking on the military budget. Support for higher arms spending has dropped dramatically. This is due to the sharp cutbacks in social spending and the many reports on corporate fraud and abuse. As Peter Hart put it, popular outrage over fiscal irresponsibility at the Pentagon "comes roaring out of the polling data."

The fact that Johnny Carson is making jokes about the Pentagon's toilet seats and ashtrays confirms this analysis. You can't make jokes about something like this unless popular feeling and concern are very widespread. This attitude on military spending is a complete about-face on how the public felt just a few years ago.

Even at the height of public support for the Pentagon, in October 1980, 78 percent of the sampled public believed that the Defense Department didn't use its ample sums efficiently. And by 1988 cynicism was rising. It was a sleeping campaign issue with great potential, but no candidate for the nominations seemed to be acute enough, or opportunistic enough, to seize upon it.

But in 1986 a former Navy employee, now working for a contractor, warned the Naval Investigative Service that a consultant was trying to sell contractors inside information from the Pentagon. An FBI investigation was begun under the supervision of William Weld, head of the criminal division at the Justice Department. Attorney General Meese was not informed, and the inquiry not made public until mid-1988.

The Justice Department, which had behaved with such suspicious partiality for nearly eight years, now proved to have its own underground -- a prosecutor who was willing to listen to a closet patriot, and a sizable investigative force to follow up. No thanks, of course, to Edwin Meese, Ronald Reagan, Caspar Weinberger, or Frank Carlucci.

The sudden revelation reminded us that there is one very old-fashioned check on malfeasance even in a system as vast and complicated as the Department of Defense. And, for those who could see the lesson, it was also a reminder of the kind of mentality that feared and hated the results of simple honesty.

On June 14, 1988 -- the day before Ron Fox's book party -- FBI agents with search warrants descended on at least five Pentagon offices and on dozens of contractors' and consultants' offices in twelve states and the District of Columbia. Later news put the number of grand jury subpoenas at about 275. The two-year investigation, code-named "Operation Ill Wind," was a wide-ranging examination of bribery, bid rigging, and insider trading in the defense industry.

Former Secretary of the Navy John Lehman and consultant Melvyn R. Paisley (ex-chief of Navy research and development) were among the former high Pentagon officials under suspicion. Henry Hudson, the U.S. attorney in Alexandria, Virginia, who was overseeing the investigation, was scrutinizing such well-known corporations as McDonnell-Douglas, Martin Marietta, Litton Industries, Unisys, Hercules, Pratt and Whitney, and Norden Systems.

I first heard of the raids when Peter Stockton telephoned to ask if the office of my fellow deputy in the Air Force, Victor Cohen, was being searched. William Weld and FBI directors Webster and Sessions had shrewdly -- considering the Meese justice Department's record in such past cases as those of George Spanton and Bob Golden, not to mention Ollie North -- kept the operation under deep cover. Among the very few people on Capitol Hill who I know had prior knowledge was Kris Kolesnik.

In October 1985, Kolesnik's boss, Senator Grassley, had tried to investigate similar allegations but had been blocked by the Justice Department on the grounds that it was pursuing its own investigation of the case. Nothing had come of Justice's supposed effort, however. Congressman Dingell, too, had warned Caspar Weinberger of some alarming indications, but Weinberger had ignored them.

Most members of Congress professed to be shocked at the news. Senator John Warner of Virginia, senior Republican on the Armed Services Committee, probably spoke for the majority of Congress in his unintentionally recorded remarks to Senator Sam Nunn on June 16, picked up by an open WUSA-TV microphone. "I'm shook to my shoes about this fraud case, Warner whispered, adding, "Bribery is rampant."

Senator Grassley, on the other hand, spoke for me and my allies when he said that the congressional expressions of disbelief reminded him of a scene in Casablanca with the French police captain, Louis Renault (Claude Rains). Sitting in the front room of Rick's saloon, Renault is informed that gambling is going on in the back room. He says, "I'm shocked!" Just then a porter hands Renault a sheaf of currency, saying, "Your winnings, sir." The Washington Post's Herblock cartoon here reproduced is a good example of what many journalists thought of the "shock."

"Shocking!" copyright 1988 by Herblock in The Washington Post.

I was somewhat surprised by two aspects of the scandals. The first was that the FBI (and as later came out, Assistant Attorney General William Weld) was able to avoid having their project killed by Ed Meese, which they accomplished by not telling him about it.

The second mildly surprising aspect was the extent of alleged transactional bribery. My perception was that transactional, or "fee for service," bribery had been relatively rare in Pentagon acquisitions. Ordinarily the spending coalition buys the servant, so it has no need to buy specific services. The co-opted servants are obedient ("responsive," in the jargon) and understanding, real "team players." For the military, especially, the prospect of a plush, revolving-door retirement job gives the coalition a real hold on all but the most principled and selfless officers. Most are pushed out of the service in their mid-forties by the up-or-out system, and they need jobs for that expensive phase of life, what with growing families and staggering college costs ahead. They need good jobs, and the door at Defense Boondoggle Systems, Inc. (DBS) is open. As for simple black-bag bribes, most officers would regard them as both demeaning and unnecessary. There are so many fraternal, back-scratching relationships within the officer corps, including both active-duty and retired officers, that an ex-colonel at DBS can get the tip he wants without a bribe.

After the first shock the media stories of Pentagon scandal began to widen. Three congressmen were implicated, according to press reports, and names of more contractors and consultants began to surface. Reports cited specific examples of suspicious bid rigging, such as that on a $70 million Marine Air Traffic Control system. On July 1 Defense Secretary Carlucci announced that nine Navy contracts -- none for major weapons systems -- were "tainted" and would have their funding frozen.

Most of the Pentagon-industry spenders were, like Warner, "shook to their shoes" -- whether at the revelations or from the fear of being caught themselves only time would tell. The academic barrage they had instigated now seemed as feeble as the noise of firecrackers the ancient Chinese armies used to frighten the enemy. Nevertheless they tried to put on a bold face and offer explanations.

Because most of this happened on Weinberger's watch, he was questioned closely on a couple of TV panel programs. His defense, echoed in a statement by Reagan, was that "there are a few bad apples in any barrel" and that, with millions of people working for the Department of Defense, it wasn't surprising that a small minority were on the take. The corollary was that there was nothing wrong with "the system." That the system invites bad apples and makes bad apples prosper richly is, of course, part of the thesis of this book.

Another exculpatory, partial explanation of the scandals was voiced by Representative John Spratt, a member of the House Armed Services Committee (as quoted in Time, June 27, 1988), when he spoke about the contracts process: "You almost have to be an insider to understand it." Time went on to say that the consultant companies, or "rent-a-general" agencies, hire former procurement officers who "know both the procedural intricacies of how contracts are processed and the technical needs of the services." Time added, "Without these middlemen, the military's complex procurement system might not work at all."

If, instead of the insider system, we tried honest, old-fashioned competition -- such as that envisioned by Senator Grassley's Creeping Capitalism -- the greasemen wouldn't have a foothold. They would have little to sell, and bid rigging would be much more difficult, especially if we had good internal checks and balances.

The way the system "works" and to whose advantage it works was becoming more and more apparent. If and when the details of Project Ill Wind are fully exposed, the public will be more surprised by what is legal than by what is illegal. As I had illustrated in my June 4, 1987, congressional testimony, the Pentagon had all but destroyed its traditional, time-tested safeguards against corruption. Along with that, the Reagan team had suppressed that greatest of all controls: the impulse of honest men to tell the truth in public. The First Amendment's guarantee of free speech is not only the best of all legitimate management controls; no other works without it. Ex-Secretary Weinberger might be reminded of Sherlock Holmes's dialogue with Colonel Ross, speaking of a watchdog: "'Is there any point to which you would wish to draw my attention?' 'To the curious incident of the dog in the night-time.' 'The dog did nothing in the night-time.' 'That was the curious incident,' remarked Sherlock Holmes."

In addition, the combination of loose procurement rules and government acquiescence in rip-offs leaves many a crook untouched. As exposure followed exposure, the Packard doctrine of contractor "self- governance" or self-policing looked more and more ludicrous. Solemnly accepting the Packard rules on their face value, the Dingell staffers and I inquired as to whether any contractor had turned in a self-arrest form when the scandal broke. None had. We had previously asked Derek Vander Schaaf, the Pentagon's deputy inspector general and self-policing advocate, if he had been busy distributing the self-policing forms. Apparently he hadn't. On July 6, 1988, the House Armed Services Committee laughed out loud when Vander Schaaf testified that thirty-nine of the forty-six contractors who had signed up for the self-policing program were under investigation.

Secretary Carlucci moved quickly in the crisis. He appointed an internal review committee headed for the moment by his general counsel, Kathleen Buck. And he called in the oldest hand of all, David Packard, to go once more into the breach. On June 22 the Washington Post reported that Carlucci had asked Packard to examine the issues involved and to advise the Pentagon on ways to handle them.

One of the issues was very close to home. Kathleen Buck already knew that Secretary Frank Carlucci had a continuing financial stake in one of the companies under investigation. Between his Pentagon job as deputy secretary in the early 1980s and his appointment as Reagan's national security adviser, Carlucci had been elected to the board of Unisys Corporation, a major investigative target. He served on that board for two handsomely rewarded years.

In addition, this two-year stint earned him $82,482, to be paid over an unspecified number of years, starting when he left federal service, according to the financial disclosure statement Carlucci filed with Buck on November 9, 1987. Carlucci's disclosure form also included the following entry: "Pursuant to Unisys (Sperry) Corporation directorship, will receive pension plan payments ($14,300 to be paid annually effective 11/90)." These payments depend on Unisys still being in business by then, a circumstance heavily dependent on the actions of Secretary Carlucci.

After the June 1988 scandal broke, reporters began asking for copies of Carlucci's financial disclosure forms, whereupon another version appeared, this one dated May 16, 1988, and also approved by Buck. The earlier, obvious conflicts were changed, but not too neatly and certainly not convincingly. The new disclosures said that the $82,482 Unisys would pay Carlucci had been "cashed out." Actually, it appeared that Carlucci had cashed in. The disclosure form did not specify how much the serving secretary of defense received from the investigative target, but David Evans reported in the July 6, 1988, Chicago Tribune that the payoff was nearly $96,000.

In addition, Carlucci's new disclosure stated that his Unisys pension plan was being replaced "with an annuity with Travelers (Insurance Company)." No details were forthcoming, but the arrangements elicited these observations in Evans's July 6 article:

The report does not say if the transfer is, or was, made by a single lump-sum payment from Unisys, or if Travelers will receive a series of payments.

A series of payments would leave Carlucci with a continuing financial stake in the fortunes of Unisys, presenting a conflict of interest if he makes decisions on defense issues regarding the company. Carlucci has not made a public statement about how he will handle Unisys matters.

If a lump-sum payment was made, Carlucci may be in a similar situation to that of Melvyn R. Paisley, the former assistant Navy secretary who is one of the principal targets of the FBI investigation.

Paisley received a lump-sum "golden handshake" of $183,000 from the Boeing Co. when he left the company to join the government.

The U.S. Court of Appeals recently declared the payment was a conflict of interest, overturning a lower court ruling.

Where was General Cappucci, who saw conflicts of interest even where there were none, when we really needed him?

Finally, another talent pool was available to help out in the Pentagon inquiry. On the June 26 ABC "This Week" program already mentioned, Don Fuqua, head of AIA, the contractors' organization, volunteered that the CEOs of the giant corporations were willing to come to the Pentagon to help Packard smite their archenemy, Low-Cost Culture. What with Carlucci's own general counsel, an array of contractor moguls, and David Packard heading the parade, the malefactors would be begging for mercy.

On the other hand, they might be falling out of their chairs with laughter.
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Re: The Pentagonists: An Insider's View of Waste, Mismanagem

Postby admin » Sat Nov 02, 2013 2:52 am

17. Our Corporate State

A LONG AND CURIOUS article titled "The Morning After" appeared in the October 1987 issue of the Atlantic Monthly. Its author, Peter G. Peterson, was an investment banker, former government official, and chairman of the Council on Foreign Relations. It was curious in that much of its analysis was so accurate and its conclusions so wrong. Those conclusions represent, in some interesting ways, a lot of the confused thinking of the 1980s.

Peterson wrote, "We now find that the budget deficits and an evaporation of the public's pro-defense consensus are drawing an ever-tightening circle around all our strategic options." That, of course, is only half the story. What is needed to complete the thought is a better understanding of the Reagan-era fiscal disasters that helped to evaporate the consensus.

Among other symptoms of fiscal illness, Peterson noted the collapse of our trade balance in manufactured goods "from a $17 billion surplus in 1980 to a $139 billion deficit in 1986." His solution? "First, we must tame the federal budget deficit." Obviously, but where do we start cutting? At the Pentagon? That's not impossible, according to Peterson, if fate would give us a lucky break: "Real defense spending has been effectively frozen for the last couple of years, and we may be at a crossroads in foreign policy which will allow us to make substantial future savings in security expenditure."

In looking forward to, presumably, a new era of detente with the Soviets, Peterson overlooked the fact that the greatest pacific development in American foreign policy over the past forty-two years -- the withdrawal from Southeast Asia -- was followed by an enormous increase in military spending. Peterson used the standard Establishment evasion: We can't control the huge expenditures at the Pentagon, but with a more benign foreign policy, expenditures may recede in some natural ebb of the tide. The reader will note that this argument rests on a supposed cause and effect that have no necessary connection.

Meanwhile, what to do? "We must," Peterson said, "increase federal revenue" by adding a huge sales tax on gasoline and a "five-percent value-added (sales) tax on all products." Presumably working people, who are hit hardest by such regressive taxes, would then be too broke to buy Japanese cars and televisions, and thereby the trade deficit would be reduced.

While in our nightly prayers we were supposed to wish for a change in foreign policy that might miraculously slow the Pentagon's upsurge in spending, where could we actually economize? The answer: in "non-means-tested entitlements," of which Social Security, a favorite Peterson target in the past, was the largest.

But wait. Social Security was not adding to the budget deficit; the Social Security trust fund was running a huge and growing surplus. According to the February 18, 1988, Washington Post, the Congressional Budget Office estimated that the surplus in the trust funds (Social Security was the largest of these) was likely to be $97 billion in fiscal 1988, as opposed to a deficit of $245 billion in the nontrust-fund part of the federal budget, or the Federal Funds Schedule. Chart 17-1 shows the role of the Social Security surplus in masking the size of the overall federal deficit and making the black hole look less deep than it is.

As of this writing, government actuaries estimate that Social Security surpluses will, unless there is an economic collapse, rise to the trillions before the inevitable downward trend when the Baby Boom generation begins to retire in the 2010s. The constant danger, of course, is that an administration faced with the hungry demands of the Pentagon will begin reneging on the deal with the old folks.

In his Atlantic Monthly article, Peterson pointed out that at the end of 1981 we were the world's largest net creditor nation, with foreigners collectively owing us $141 billion more than we owed them. By the end of 1987, Peterson forecast, we would be closing in on a negative $400 billion, with our net foreign debt projected to reach $1 trillion by the early 1990s. As Chart 17-2 shows, by 1988 the federal government's bonded debt was growing exponentially. It was becoming interest-driven; that is, we were borrowing money to pay accrued interest, which, as Senator Grassley has often pointed out, is a classic economic definition of bankruptcy.

Chart 17-1. How the Social Security surplus masks the size of the federal deficit. Source: Congressional Budget Office.
Budget deficit (in billions of dollars), 1988-1993

So Congress had to take some action. It did that with the budget summit of 1987, making a modest start on the Peterson prescription. But in doing so it actually added more than $10 billion to the military budget set by the House Budget Committee and almost $5 billion to that approved by the Senate!

Since the two houses usually reconcile their budget figures by splitting the difference, the Senate Budget Committee staff focused on the midpoint of the difference between the two bodies, as shown in the summit outcome. This produced an increase for the military of $6.676 billion and a cut of $1.587 billion for everybody else, which meant a net increase of $5.089 billion in overall obligational authority. When this was translated into projected spending, the Pentagon outlays budget went up $5 billion from fiscal 1987 to 1988 and a whopping $8.5 billion for FY 1989. Most of that new $13.5 billion was for acquisitions.

In the end the Merlins of the budget announced a projected reduction in the deficit. But how? First they used the trust fund surpluses as camouflage. Next they whistled up some hoped-for increases in revenues from 1987 to 1989 -- $119 billion, partly from higher Social Security taxes and partly from projected increased revenues from general taxation.

The summit's action seemed insane: the only scare loose in the world was a peace scare. Congress had decided that we were not going to initiate a war in Central America. Mikhail Gorbachev was behaving less like an Evil Emperor and more like a politician eager to make arms reduction deals with Ronald Reagan. There was no known increase in The Threat. It had been demonstrated to all Pentagon insiders that we could drastically reduce unit costs for weapons while improving their quality. So why the big increases in the military budget?

The secret was that the planners in the DoD had continued to stick to their ascending plan even during the slowdown called the Freeze. Over the previous twelve years Congress had appropriated so much more than the Pentagon was able to unload that there was a huge backlog of unspent money. Spending did rise, just more slowly. Meanwhile, back at their computers, the planners and programmers looked into their crystal screens and saw visions of new billions after the Freeze nonsense was forgotten.

Chart 17-2. U.S. public debt, 1930-1988. Source: Office of the Secretary of the Treasury, May 3, 1986.

Their guiding horoscope was a kind of five-year plan. Back in 1961 the Robert McNamara Whiz Kids created something called the Program Planning and Budgeting System, or PPBS. Managers used it to make their future cost projections, which were combined into the Five Year Defense Program, or FYDP. This latter, with its year-by-year estimates for each element, was intended as fiscal guidance for the president.

Needless to say, the negotiations that produced the FYDP were horrendous, with great politicking, re-estimating, trimming the losing programs and expanding the winners, adjusting and reallocating the adjustments. My friends in the office of the secretary of defense estimated that all this consumed at least a million manhours per year in the Pentagon. And though it was far from perfect, PPBS did bring some order to Fort Fumble's feeding frenzy.

Then in 1986 an odd thing happened. The price tag on the future plans vastly exceeded even Ronald Reagan's permissive guidelines, the sum of the parts being much greater than the acceptable total. Weinberger and his baffled aides finally gave up trying to reconcile the figures, and thus there was no balanced FYDP in 1987.

Under strictest secrecy, they were able to get away with the concealment, sharing the facts only with Pentagon insiders, big contractors, and tame members of Congress. This was management breakdown on a huge scale, involving hundreds of billions of dollars in mismatched projections. But it passed unnoticed in 1987, and in 1988, under the Poindexter-Packard plan, no reconciled FYDP was required.

It was a hefty time bomb that Cap Weinberger had wrapped up to present to the new administration when it took office in January 1989. A new management team would "discover" that the Pentagon "needed" as much as $400 billion more than previously planned for the ensuing five years in order to avoid immediate mass layoffs, contract terminations, and base closures -- all nightmare prospects for even the most fiscally responsible president.

The obvious course of that point would be for the president to announce to the country that in this crisis the nation's security and economic health were at stake. He would call upon everybody to make sacrifices until he could bring order out of chaos. In the meantime Pentagon spending would have to remain at the current level, or even higher.

The only thing that prevented Weinberger's ruse from succeeding was the vigilance of one senator, Lowell Weicker, and his staff assistant, Charlie Murphy. Informed members of the Pentagon underground passed the news to Murphy in early 1987. I learned of it at about the same time, but I was crippled by the straitjacket of Poindexter-Packard and the new secrecy gag rules, which threatened me even though I had not signed the SF 189. More important, almost everybody else had gagged themselves, which greatly reduced the flow of information.

My arithmetic showed that the Air Force alone had a five-year price tag that exceeded the Reagan guidance by $24.5 billion and exceeded our expectations of what Congress might appropriate by $72.8 billion. I tried repeatedly to get my new military bosses to discuss the issue, arguing that the sooner we squeezed some appreciable amount of fat from our programs, the better off we would be when we faced the budget discrepancy.

They had a sudden and interesting deafness. It took me a little while to realize that what the top Pentagonists were aiming for was fiscal chaos. They actually believed that chaos would benefit them and their contractor allies by forestalling any new spending discipline. It would be a license to steal.

I had some clues about this that would have been amusing under any other circumstances. In one staff meeting when I was trying to get some useful discussion of our overriding problem, I was silenced so that the meeting could devote itself to the price of haircuts in Air Force barbershops. In another meeting I was cut off in favor of a discussion dear to the heart of the chief of staff of the Air Force: leather flying jackets for pilots. In the year 1987 pilots no longer actually wore leather jackets (our open-cockpit biplanes had all been retired), but in their off-duty hours, such jackets would give them a kind of heroes-of-the-Dawn-Patrol look greatly admired by the chief of staff.

Specifications had been drawn up for the purchase of North African goatskins, which were supple and soft and supposedly had more sex appeal than other goatskins. But the North American goat breeders were horrified. What about the Buy American act? What about the fact that American goatskins were almost half again larger than the foreign kind? Shut up, Fitzgerald, this is a lot more important than any $73 million budget shortfall.

I then appealed to General Claudius Watts to declassify information about the serious budget mismatch, but while the bureaucrats stalled, Senator Weicker brought the news. In the meantime a secret deal -- a kind of defense summit -- had been in the works. Apparently, part of that deal was to replace Weinberger with Frank Carlucci. Carlucci, the rumor went, looked more "reasonable" to the public and Congress and would probably be a more plausible front for increased Pentagon spending.

On January 10, 1988, the Washington Post published a chart that gave a graphic view of the budget mismatch before the summit deal (see Chart 17-3). The exact details of the deal have not been made public at this writing, but the essentials were these: the Reagan administration had projected spending at the 1987 level plus 3 percent annual growth plus inflation; the deal changed that to 2 percent plus inflation, compounded annually. The trade-off was an accelerated increase in the congressional funding line. Instead of rising to $300 billion by 1997, congressional funding would get to that figure by 1990, seven years sooner. All this, of course, would be the problem of the new president. It was a true banana-republic solution: postpone it to manana. Peter Peterson was only one of many economists and critics who commented on the defense spending crisis. Seymour Melman wrote a monumental book on the subject, titled Profits without Production (1983). A key passage noted that "the Pentagon has effectively displaced cost-minimizing with a system of cost- and subsidy-maximizing," a demonstrably correct proposition that David Packard and Ronald Reagan have hailed as a virtue.

Chart 17-3. Defense Department budget projections. Source: System Planning Corp., prepared for the Commission on Long Term Strategy but not included in the commission's report to the Pentagon and the president.

Gordon Adams and David Gold, in a July 1987 study financed by the Rockefeller Brothers Fund and the Circle Fund, tried to counter Melman's view with a kind of apologia. Defense contractors' prices were comparatively reasonable, they said: "Cost-maximizing practices within defense industries appear to have contributed to significant growth in weapons systems costs. However, defense sector price indexes compiled by the Department of Commerce indicate that inflation within defense industries is only slightly higher than inflation in civilian sectors with similar products" (emphasis added).

The point is that the comparison is tainted. The industries with "similar products" were already infected with cost-maximizing by the defense giants in their midst. Thus it was only natural that the infected sectors should be only slightly behind the disease carriers. Adams and Gold did not even begin to address the problem of a manufacturer whose cost for making one toilet pan was $600. He could not sell his product in any truly competitive market, domestic or foreign; his only conceivable buyer was the Pentagon.

Melman and his colleagues had noted the important "lost opportunity" factor, which is one way that military spending drains the general economy. Engineers who devote many hours to designing a plain three-inch piece of wire are not using their time to design products that might compete with Toyota or Sony. Worse, engineers long employed in such boondoggles rust and lose their skills. Adams and Gold missed those points entirely. They also failed to understand the additional drain caused by the lax and slovenly work habits so endemic to defense industries -- and so easily spread to "civilian sectors with similar products."

Another attempt to answer the great "why-can't-America-compete-any-longer?" question arrived in a 1988 treatise titled "The Case for Manufacturing in America's Future," prepared under the general supervision of Colby H. Chandler. Mr. Chandler was chairman and CEO of Eastman Kodak, a sizable military contractor. The paper began with the sensible but obvious thesis that American manufacturing now compares badly with that of the rest of the world and that we thus have reason to worry about our competitiveness. Chart 17-4 (constructed from data compiled by the CIA) illustrates the situation.

After that beginning, Chandler and company headed for the deep end. They decided that "our competitiveness plummeted due in large measure to an overvalued dollar." As patient readers of this book know by now, our "competitiveness" began to decline in 1965, and whatever the state of the dollar -- high in 1985 or low in 1988 -- the overall trend in our balance of trade has been down. Obviously we can improve the balance of trade if we take less for our goods and pay more for imports, thereby reducing the American standard of living. But this is a self-flagellating solution to the major problem of competitiveness.

Chart I7-4. Changes in components of the U.S. trade deficit. Source: Central Intelligence Agency.

Chandler's article, in fact, gave evidence that our competitiveness did not plummet solely as a result of an overvalued dollar. He included a chart of values ("U.S. Real Exchange Rate") based on an index for the years 1970-1988 and compiled by Morgan Guaranty Trust. It compared the prices, in dollars, of nonfood manufactures in the United States, to prices for the same goods in other countries, in their currencies. In 1970 (the year before our first modern-day trade deficit), the index stood at 112. By 1987 it had dropped by 17 percent to 93. In other words, the dollar had lost only 17 percent in relative value while our balance-of-trade figures were in a free fall. The correlation Chandler's authors sought just wasn't there.

Chandler had a Petersonian remedy, though: boost consumer taxes, especially the value-added kind. That would raise the price of American manufactures at home and "all imported goods would be taxed, so that consumers would not detect any differential between the retail prices of domestic and imported goods." It was a marvelous soak-the-poor-to-support-the-rich program -- the rich being anybody who profited from military contracting and the poor being all ordinary taxpayers.

Chandler went on to give apparently impressive figures on increases in defense manufacturing jobs: over a million new ones in 1977, 1980, and 1985. As manufacturing employment in general decreased by 1.29 million from 1980 to 1986, defense employment went up by 740,000. Without defense industries to bolster the job market, he stressed, employment would be at its lowest since 1965.

So a lot more people were working in defense, but what were they producing? Chandler said nothing about output of useful products, nor even whether all that employment culminated in the noneconomic objective of outgunning the Evil Empire.

The ergo at the end of all this was that military acquisitions were wonderful medicine for our economic health: "Just as the manufacturing sector benefits the most when defense spending increases, it will be the largest loser as spending declines." And, making the prognosis of many a quack doctor before him, he uttered the words most likely to make Congress turn faint and helpless: "Defense cutbacks will ... lead to rather concentrated employment reductions."

Like Adams and Gold, Chandler was not quite in the real world. As many of our giant corporations became less and less able to compete in foreign -- or domestic -- markets, Congress gave them massive intravenous injections of military money. Unfortunately, as Chart 17-5 demonstrates, that was no cure. If anything, Congress anticipated the steep drop in our competitive ability. The upward-zooming line of "total obligation authority for DoD acquisition" actually preceded the downward slide of the trade figures because the former is done by fiscal year and the latter by calendar year. Prior to 1977, then, the obligation figures appeared on July 30 and the trade figures at year's end. Furthermore, the obligation authority is simply a permission to spend. The actual spending usually comes a year or so later.

Chart 17-5. Defense acquisition costs versus U.S. balance of trade, 1960-1988, in current dollars. Source: Office of the Secretary of Defense and the Department of Commerce.

In their simplistic surveys of economic problems, Chandler and other writers overlooked another subtle aspect of the "lost opportunity" factor Melman had pointed out. This was the deterioration brought about by underemployment in defense industry. When a contractor warehoused a team of engineers in order to take advantage of the "full absorption accounting principle," he was letting talent rust. That principle encouraged corporations to keep technical teams together even if they had to be given busywork. The degradation of so many American engineers may be the most devastating hidden effect of our reckless military spending. When I was an engineering student and young engineering practitioner, we were indoctrinated with the idea that engineering is applied economics. Defense manufacturers seem never to have heard it.

Still another strain of military-contractor infection that began to spread through the general body of the nation from the 1970s on was cost justification, which the academics in charge of B-school management training adopted in all its manifestations. The cost-plus-percentage-of-cost concept (politely called "pass-through") spread into the campus courses and from there into many areas of business and industry, most rapidly in administered-price industries.

The health-care industry became one of the chief sufferers. The feverish rise of health-care costs starting in the late 1960s went hand in hand with the hospitals' adoption of cost-plus pricing. Along with that, physicians' billings were now based on an elaborate pricing system that (like the military contractors') was based on an average of past billings -- an average that kept moving higher and higher. The same disease spread to the quasi-public corporations such as the Postal Service, Amtrak, and Comsat.

For a long time I have felt like an eyewitness to the systematic disintegration of everything that made America competitive in the industrial world of the twentieth century. From the factory floor to the boardroom to the rarefied air of high government offices, a slackness of mind has set in. To be tough-minded, economical, and bent on winning is no longer the fashion.

Not that these shoddy, new habits are unresisted or universal; some stubborn and honest people do remain in corporations and the government. In my own area of concern, performance measurement systems are still in place even after years of battering from the cover-up troops. Should-cost worked when we were allowed to use it properly. Whenever we could pry loose enough information to do technical audits, they were valuable. We clung to the concept of work measurement for factories and managed to preserve it in principle. The times when we could persuade the big spenders to permit some competition for a contract, it paid off.

Competition had some interesting facets. In 1985 Congress passed a "reform" act called the Competition in Contracting Act, or CICA. One of its immediate effects was to allow the Pentagon to change the definition of "competitive" in its reporting. Before CICA, competition meant advertised solicitations and sealed-bid responses. Under the new system, even if the rivalry was no more fierce than two sumo wrestlers running the hundred-yard dash, any vying qualified. One striking case of CICA's effects was when a little competition brought the bid from one of our worst-case contractors down by about 80 percent. This contractor still couldn't make, say, a plastic toilet pan for less than $1,000 apiece, and if he ever tried to compete in the world market, the most insignificant Japanese company would eat him up.

And CICA failed to do anything about the grand swindles that hid under the Pentagon's label of competition. A splendid example of this was demonstrated by Ronald Brousseau, Sr., whose remarks were first secretly recorded by the FBI and later amplified in a guilty plea, according to Peter Stockton, who was following the case.

Brousseau was a Northrop buyer who took kickbacks on purchases for the B-2 Stealth bomber. This machine was headed for a $500 million price tag (each), and Brousseau explained part of the reason. Original bids would be "bumped," or increased, so that the seller could pay a kickback, about 25 percent of the bump, and keep the rest. Brousseau explained how he got away with it for so long: "Nobody questions dollars or anything like that. As long as I can show competition or courtesy competition or bullshit competition you know. That's all I gotta be able to show is competition." (All these quotes come from the U.S. Attorney's sentencing memorandum.)

Brousseau's prosecutor further illuminated the practices, describing "courtesy competition" as "a fraudulent arrangement between a buyer and a group of sellers who agree that the suppliers will take turns being the low bidder." Everybody inflates his bid so that the low bid is still fat enough to provide a kickback and a nice cushion of profit for the winner.

It's a beautiful scam, and if it weren't for the occasional FBI operative with a body mike, a safe one. The big corporate contractors have let their own internal controls wither away until they no longer have much ability to check on such schemes. The auditors and purchasing systems evaluators have the comforting multiple-bid documentation to show that competition has taken place and the rest doesn't matter. Brousseau summed it up when he said, "Don't get greedy. You know, a nickel (5 percent) here and a nickel there. Everybody's gonna get fat and everybody's gonna be happy."

Peter Stockton shortly thereafter interviewed a supplier who said he'd been shaken down by most of the big corporate names in his industry. He was willing to testify that what Brousseau had done was common practice in military contracting. But the Edwin Meese Justice Department wouldn't grant Stockton's source immunity in return. The department promised to take some action, but that action never came. Not surprising, inasmuch as Brousseau himself received only light punishment, according to Stockton.

Another subtle and seldom-perceived danger was the growth of the military into a gross and mighty bureaucracy, one of the scariest developments of the 1980s. Reagan, after outbidding Carter with contract gold for the favor of the military party, then supplanted civilians with the Praetorian prefects of procurement. In this he was only following the example of the Emperor Lucius Septimius Severus, who, as he lay dying after a pointless campaign in North Britain, advised his two sons and heirs, "Make your soldiers rich; don't bother about anything else."

Reagan raised the pay and allowances of the military brass to unprecedented levels. With their handsome raises and tax-free allowances, supplemented by taxpayer-financed personal servants, drivers, homes, and executive airplanes, generals and admirals live in multimillionaire style. Even Air Force colonels, so thick on the ground that special jobs have to be concocted for them, cost the taxpayers 40 percent more than equivalent-grade civilians doing the same work. And many, of course, are headed for retirement rewards as executives in the contractor companies they have been cozy with while in uniform or as consultants ("rainmakers" in trade jargon) making sure the big contractors don't want for business.

Edward Gibbon, in his Decline and Fall of the Roman Empire, noted that "an hundred thousand well-disciplined soldiers will command, with despotic sway, ten millions of subjects." Instead of the gladius and the pilum, the dominating weapons of our own military party are rich contracts, jobs, assured profits, power, and prestige. And one more: the power to deny jobs to people in many areas of our society. For example, the loss of a security clearance is often tantamount to the loss of a work permit. I don't intend to imply by this that the military alone is running an "invisible government." The military side of the spending coalition has thus far been satisfied with its perks and has remained a servant of the corporate side. But if one day the power should shift, we are in for more serious trouble.

Where the military exercises a scarcely visible governing power is in its use of National Security Decision Directives (NSDDs). These, as we have seen, can be promulgated by a militarized National Security Council staff and okayed by the president's auto-pen. (And remember, the Nixon v. Fitzgerald decision put the president out of reach for civil damage suits.)

In 1988 The Threat seemed to have lost much of its old black magic, what with perestroika, a medium-range ballistic missile treaty, and the withdrawal of troops from Afghanistan. A Russian landing on Long Island did not seem imminent. The administration started a frantic search for sinister foreign enemies -- even little Threats -- to make continued big military spending seem respectable. But Ortega failed the test, then Noriega failed to build as hoped and even became an embarrassment.

A move was made to throw our armed forces into the war against the drug smugglers, but that was handicapped by increasing evidence that our national security apparatus, or parts of it, had tolerated certain smugglers in certain very suspect ways. In any classic scenario of power taking, the military would be happy to move into enforcement, but our military wanted none of the drug-policing role. Narcs have a hard, nasty job and few showy victories.


Another circumstance that separated the United States from the classic banana republic was our highly developed industrial and economic base, dominated by corporate oligarchies rather than oligarch families. The privileged Pentagon contracting corporations took for granted that they would give to their government customer in accordance with their ability, or their mood of the moment. The grateful government would see to it that the ever-malleable contracts were changed to conform to the giants' actual products. And the big corporations would be compensated in accordance with their need, as documented by their actual spending.

Just as the Pentagon contractors' bad work habits and worse management practices were encouraged and spread throughout the United States' corporate body, so did the notion of corporate communism. Every big corporation seemed to think it had a right to be kept alive, no matter how poorly it performed. The sloppier and more unsuccessful the management, the more it insisted on bailouts and protection from competition. The very thought that favored giant business firms should compete for the trade of consumers with free choice was somehow abhorrent to the defenders of privileged status for the big corporations. The suggestion that a changing economic climate demanded that dinosaur companies adapt or die bred panic. The pampered giants had become so grossly fat, so lethargic, and so nonproductive that their most strenuous efforts were periodic campaigns for more public money and more protection.

The evolving corporate welfare system was brilliantly described and analyzed by two British academics, R. E. Pahl and J. T. Winkler, in "The Coming Corporatism" (Economic Affairs, March-April, 1975). By their definition, corporatism is a political-economic system under which government guides privately owned businesses toward four goals: order, unity, nationalism, and "success."

Order, they said, "meant the elimination of the anarchy of the market in all its forms (including extreme success or failure for capital or for labor). This desire for stability emanates from a revulsion against the market processes that lead, on one hand, to the collapse of major companies in important industries ... and, on the other, to excessive speculation and windfall profits."

Unity is the "substitution of cooperation for competition. This desire for collaborative effort arises from a revulsion against the perceived wastefulness of competitive struggles."

Nationalism is the "elevation of 'general welfare' to complete priority over self interest or sectional advantage."

"Success" is the "attainment of national objectives established by the state.... it means giving conscious direction to the economy by establishing priorities and targets and by restricting work done toward alternative objectives. First and foremost, this means the control and concentration of investment and of the allocation of resources."

The authors were writing about corporatism in Britain; American academic writers prefer the more palatable "industrial policy." Pahl and Winkler had a less bland description: "Let us not mince words. Corporatism is fascism with a human face." They went on to say, "An acceptable face of fascism, indeed, a masked version of it, because so far the more repugnant political and social aspects of the German and Italian regimes are absent or only present in diluted form." Corporatism, they said, takes over "the core elements of the economic strategy" of old-fashioned fascism. "Corporatism is a distinct form of economic structure. It was recognized as such in the 1930s by people of diverse political backgrounds, before Hitler extinguished the enthusiasm which greeted Mussolini's variant." That is true; many economists of the 1930s admired Mussolini's reorganization of the Italian economy along corporative and syndicalist lines. By setting up special parastate agencies or "corporations" to replace failing or inadequate private enterprises, he was able to control the important economic sectors. Elitists everywhere found that laudable.

Hitler, with a much more highly industrialized nation, built on and to a great extent integrated the existing large corporations into the government system. The smokestack barons of the munitions industry benefitted greatly, of course.

At first both Italy and Germany seemed to have produced an economic marvel. They had created markets for troubled industries and made jobs for many more workers. Hitler's wehrwirtschaft (roughly, "defense economic system") was very much like our own parastate cartel of giant defense contractors in many respects. It appeared to be a splendid tonic for the economy. Another similarity was that the smokestack barons supported this new order and gave it direction. The Wehrwirtschaftfuhrer role played by Alfried Krupp was similar to that of David Packard in our own day.

Despite the rosy look of prosperity from making more guns than butter, the German and Italian arms economies were nonproductive in a classic economic sense. They did not add much of anything to the infrastructure or to the quality of life, and they weren't competitive in foreign markets. And that meant even more subsidies and protectionism.

In the end, going to war was the only cure. In Hitler's Secret Book, the Fuhrer despaired of competing with the productive capacity and efficiency of the United States, and he spoke of us as "emerging in all fields as the sharpest competition to all European nations fighting ... for the world's markets." He added, "Despite (America's) enormous wages, it no longer seems possible to undercut her prices."

It is tempting to array all the similarities between the 1930s corporate state and today's American military-industrial complex and use them as a predictor of things to come. However, I think the threat we face is from a peculiarly American version of corporatism. In this, our strengths are also our weaknesses. Hitler, Mussolini, and Tojo had no chance of making their vast slave empires work in the long run -- the home bases were too small and inadequate. Ours, in contrast, is the largest economy in the world, if we decided to, we could live very well within our own borders, with perhaps a few raids abroad to secure strategic materials or to prevent Grenada from falling into Cuban hands.

Or to teach somebody like Khadafi a lesson. The morning after the April 1986 bombing of Libya by the USAF, my associate Tom Amlie appeared live on Cable News Network and explained that the raid was necessary: "It's that time of year." In other words, military budget time. "The budget's in trouble; aid to the Contras is in trouble," Tom said. And Khadafi was an ideal enemy. As Tom pointed out, he was "not a Christian, he talks funny, and he is probably guilty of most of the things we accuse him of." Tom then got the hook from CNN, but he had made his point.

Most Americans have a deep respect, almost reverence toward the military, from memories of Washington at Valley Forge to the Marines at Iwo Jima. They don't realize that the combination of Pentagon Praetorians and big-corporation executives has nothing to do with heroism and, in fact, almost nothing to do with war except for the occasional bloody spasm to provide an emotional excuse for more big spending. The only thing the soldiers, sailors, and pilots in combat arms service have in common with the Praetorians is the uniform.

It was only natural that corporatism in America should flourish during the eight-year lease of the White House by a sleepy old actor who loved multimillionaires, but it had been well started under his predecessor, whose notable contribution was a scheme called the President's Executive Interchange Program.

In a personally signed directive, Carter told us that this program was "a positive force for marshalling our human resources. Through this effort, both the public and private sectors jointly contribute to greater sensitivity and responsiveness in the interest of all Americans."

No, he was not offering a sensitivity-training course. He was very gently trying to give us a kind of Mussolini message: "Boundary lines between government and business are blurring. The activities of both have become increasingly similar. Each recognizes the need for closer cooperation to achieve its goals." Those goals were:

To exchange management expertise and innovative techniques; To develop a cadre of executives of experience in both sectors (government and private) who could be called to serve on government advisory panels and in higher appointive positions in future administrations.

It was the perfect definition of institutionalized conflict of interest, which is one of the "unifying" aspects of corporatism.

If Carter's interchange program should reach full flower, imagine the pool of executives and generals who could be called to serve on blue-ribbon commissions. Since not all Pentagon acquisition practices have been made legal, and since some of them still leak out and get a bad reaction in the press and from Congress and the public, we'll need blue-ribbon commissions for some time to come. Somebody has to drag the red herring, paint the whitewash on, pull the wool, stack the deck, and otherwise get the world to overlook whatever must be overlooked.

The Carter-era and Reagan-era moves for tighter "nationa1 security" secrecy is another support for corporatism (as well as for larceny). Congressman Jack Brooks gave a stirring description in testimony before the House Post Office and Civil Service Committee on October 15, 1987:

Most of the (security) classification, in my judgment, is not to keep our enemies from finding out information. It is to keep the American people and the Congress from finding out what in God's world various agencies are doing and how they are throwing away money, wasting it. They preach economy and they throw money away like dirt, and lie and cheat, and hide, and dissemble....

Now, that's what their real complaint is, that the people and the Congress might find out what they are doing. Reprogramming money, wasting money foolishly, not enforcing the law, not enforcing safety provisions, all sorts of things, and they just do not want anybody in a position to know to say publicly that, yes, this did happen. They want these people to shut up and go away.

Yet the secret part of the government keeps adding bulk. Tim Weiner, who won the Pulitzer Prize for his reporting on the "black," or supersecret, budget told a meeting of the Fund for Constitutional Government on April 20, 1988, that one measure of this was the increase in funding for secret programs during Reagan's first seven years. When Reagan took office, the price tag for intelligence and secret military activities was about $12 billion a year. In 1988 it had risen to $35 billion a year. The military portion of that amount had gone from about $2 billion to $18 billion, an increase of 900 percent. That jump suggests how much more the Pentagon, under Reagan, had to cover up. For instance, the Stealth Bomber fiscal atrocities, some of which are beginning to come to light at this writing.

The corporate state always encroaches on individual rights. And one sign of corporatism victorious is court decisions against individual rights in favor of government "security." There is the pernicious practice of making a security clearance and a work permit one and the same, in imitation of the KGB. Take the 1987 case of Navy v. Egan. Egan, a shipyard worker, was denied a security clearance and thus had his job taken away without due process. A majority of the U.S. Court of Appeals panel agreed that Egan was entitled to a fair trial, but Chief Judge Markey dissented. The man couldn't have a trial, he ruled, "because there is no law to apply." The security clearance process, Markey wrote, was "predictive ... judgmental and neither factual nor legal." For the millions of people who needed security clearances to keep their jobs, the single test was the judgment of "responsible military officials."

Markey added that the officials derived their power from the president, and his power flowed from "the President's constitutional mandate to provide for the national defense, U.S. Const., Art. II, Section II." Interestingly, Article II, Section II says nothing of the sort.

When the case went to the Supreme Court on February 23, 1988, the court upheld Judge Markey. This logic, if carried to its conclusion, could permit the (mostly secret) NSDDs to usurp the legislative power of Congress, as usually happens in corporate states. The Reagan administration's push in this direction can be measured by the estimated three hundred or more of these edicts that Reagan issued between February 1981 and mid-1988.

The most dangerous sign of the times in 1988, however, was the slowly gathering consensus in favor of a big budget increase to finance a new spendthrift era at the Pentagon. The Washington Post's lead editorial on April 10, 1988, denounced candidate Jesse Jackson's military spending proposals as a "caricature of a policy" that "no president would try, or, if he did, would not be allowed by either party in Congress to pursue."

And what proposal by the Reverend Mr. Jackson so frightened the Post? A budget freeze like the one sponsored by those dangerous left-wingers Senator Charles Grassley and Representative Denny Smith. The editorialist's notion was a strange anomaly for a newspaper with an excellent reporting staff and plenty of stored information to show what damage irresponsible military spending has done. I called the editorial office to ask for clarification, but I was given no answer.

The adverse consequences of the Pentagon's addictive boondoggling to our economy and true military capability are serious indeed, but the damage to our country's moral fiber is catastrophic. Our Constitution and our laws have been subverted to excuse wrongdoing and to rationalize the wasteful system. Concealment of misdeeds had become an official virtue, and suppression of truth national policy. Sophistry reigns in "intellectual" circles. Government officials, from the majestic office of the president to the lowest, sleaziest procurement office, lie routinely and with impunity in defense of the system. So do leaders of business and academia. Some, though thankfully not most, working people have succumbed to the lure of easy money, of what was called blood money in my youth.

So, the blocks, beams, and lintels of a corporate state are already at the construction site and the foundation has been laid. Anyone who has seen the marble structures built in Rome between 1922 and 1943 will know what it is going to look like. But looks are deceiving: this is meant to be a prison for most of us.

I have a hunch, however, admittedly an overly optimistic hunch, that it will never be built. Part of that hope comes from the fact that the military party is so blunder-prone that even its rites of omerta can't keep the truth from getting out eventually. The June 1988 disclosures of widespread bribery and bid rigging in the acquisition community are just one example. But, even more important, I conjecture that ordinary Americans will stop this sinister architecture from being built on our soil. To use an old and unfortunately debased word, it's truly un-American.

Here is the voice of one working man who figured it out. Greg Nelson, a Lockheed employee, published this view in the October 1987 issue of The Union Member's Review:

We are the only ones worried about layoffs. Lockheed is trying to make as much money as possible right now. They love Star Wars because it's so easy to make big bucks inventing things nobody can check on. Unlike Lockheed, IAM (International Association of Machinists) members are in it for the long term. We want secure jobs and a good retirement. Is that what we get with Star Wars? What does your work experience tell you? Most folks who work here know that producing useful things with all these tax dollars is not what Lockheed is all about. That's why Lockheed is more interested in attendance than production. They don't care what we make, as long as we show up, so they can justify their budget. That's the real "Lockheed way."

What happens when people find out what their tax dollars have been wasted on? They are gonna be pissed, and we are gonna get the axe. It's up to our union to show the way out.

Why doesn't Lockheed and its governmental sugar-daddies care about production? First, they're all getting rich off this scam. They won't get laid off when we do. Second, the government doesn't really need this stuff. It's just the best way to get rich quick. If they really needed all these nuclear bombs and killer satellites, they wouldn't run this place the way they do. They'd fire three-fourths of the white badges (management people) around here and set this place up to get some work done.

They tell us what we make is vitally important for national Defense. If that's true, looking at the way they run Lockheed, we're in big trouble.

Never underestimate the blindness of greed. Beware of the man who gets more money the more he claims to defend the country. That's the guy who got so many people killed in Vietnam. War industries got rich while we were dying, and for what?

I happen to think that a lot of Greg Nelsons have the strength to overwhelm a few David Packards. But if we are going to stop the corporate state from rising on our land, we had best remember the words of the late Supreme Court Justice William O. Douglas, who wrote (in The Douglas Letters):

As nightfall does not come at once, neither does oppression. In both instances, there is a twilight when everything remains seemingly unchanged.

And it is in such twilight that we must be most aware of change in the air -- however slight -- lest we become unwitting victims of the darkness.
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