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Team Efforts Win Favor at Pentagon, but Doubts Emerge

November 09, 1986|RALPH VARTABEDIAN | Times Staff Writer

Amid the rancor of defense procurement reform, the Pentagon has taken an initiative in contract awards that promises to change the industrial organization of aerospace.

In virtually all of the largest defense programs started in recent years, awards have gone to teams of prime contractors, a development that has linked individual firms with a maze of joint venture agreements.

For the first time, the fortunes of the major aerospace and weapons firms have become broadly interdependent, creating the potential for major political, technological and financial effects on the industry.

And while the Pentagon has sought to promote competition in recent years and has used teaming as a means to achieve it, teaming may ultimately have the opposite effect by reducing contractual risks to firms, homogenizing the industry's technology base and enhancing the political power of contractors.

"You are going to see more and more teaming on the big, high-risk programs, where the government is looking to offload a significant share of the development cost," said John O'Brien, president of Grumman. "You are blending all kinds of motivations for doing it--technological, financial and political."

In the past, an industry team usually was composed of a single prime contractor--an airframe manufacturer, for example--and a group of subcontractors and suppliers it had enlisted to build the constituent parts of a complex system.

But in the modern version, teams of two to three airframe manufacturers are sharing the primary tasks of design, engineering, testing and manufacturing.

The issue of defense industry teaming and joint ventures has received little national attention. Overpriced spare parts, defective equipment and fraud have garnered far greater attention in the debate over reform of the defense procurement system. But, ultimately, widespread joint ventures could have a more lasting impact.

So far, defense officials say they find little or no cause for alarm and look to teaming as an important method to further their own efforts to reduce defense spending and increase competition.

In a recent interview, Deputy Secretary of Defense William Howard Taft IV said: "There is some reason to believe that in particular projects teaming may be the only way to get a strong competition. The project may be so complex and have such a degree of financial risk that a spreading of that risk among two partners or three partners, rather than a single prime, may be the only way you can have two bids or three bids."

In a broad sense, said Rear Adm. Stuart Platt, the Navy's chief officer for ensuring that adequate competition exists among contractors, "the country is driven to financial mergers, and this teaming is a form of merger."

And defense firms have been ready and willing to form teams because it significantly abates their risk on big contracts. "If I had my choice between having one-third of three programs or one whole program, I'd take the three. If you have one big program and it gets canceled, you can be out of business."

But a wide range of aerospace executives and analysts raise troubling questions about what effect teaming agreements may have in the long run, especially to the extent that the Pentagon plans to use teams to help absorb weapons costs that the Pentagon cannot afford.

"There are a lot of important issues that have never been addressed, and yet we are proceeding wholesale with this new policy," says Michael N. Beltramo, a defense industry consultant and former Rand Corp. researcher who specialized in defense procurement competition. "We have never gone this way before."

In a study prepared this year under contract to the Navy, Beltramo wrote that "a joint development approach to new weapons systems acquisitions . . . is rapidly becoming the rule rather than the exception, without the support of empirical evidence or cogent theory to suggest its eventual success as a cost-saving measure."

Starting quietly a decade ago, the Pentagon has been steadily increasing the amount of its work that goes to teams. Now, virtually every major defense program involves teams.

The largest manifestation of teaming came only a week ago, when the Air Force awarded two contracts for development of a new jet fighter--the Advanced Tactical Fighter (ATF)--to five large prime contractors that had aligned themselves into two teams.

In addition to the ATF, the Air Force has teams working on the Stealth bomber, the Navy on the Advanced Tactical Aircraft (ATA), the Army on the LHX helicopter program, NASA on the space station and a joint services organization on the V-22 Osprey tilt-rotor aircraft, among many others.

Competitors and Teammates

In many cases, a company finds itself as a competitor to another company on one program and a teammate on a different program. Or it may be a teammate to a company with which it must compete in commercial markets, a development that worries some analysts for its potential to pollute private sector competition.

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