Wall Street Journal
October 5, 2004
Pg. 3
Widening Boeing-Air Force Probe Unlikely To Kill Tainted Programs
By Andy Pasztor, J. Lynn Lunsford and Jonathan Karp, Staff Reporters Of The Wall Street Journal
The widening corruption investigation into Boeing Co.'s dealings with former Air Force acquisition official Darleen Druyun may target additional individuals and could damage the contractor's ability to snare new business. But based on history and the comments of current and former investigators, senior Pentagon officials are expected to stop short of canceling or rebidding multibillion dollar weapons programs.
Ms. Druyun last week was sentenced to nine months in prison for negotiating a job for herself with Boeing while overseeing billions of dollars of Boeing contracts with the Pentagon. She surprised the defense industry and many inside the Pentagon by admitting that she gave preferential treatment to the company years before becoming a Boeing vice president in December 2002. That has set off a military review of the scores of contracts that were awarded under her watch. While Air Force officials say it is too early to predict what punishment will come, some industry officials expect at least a spate of legal challenges by rivals.
But based on the government's past response to major criminal investigations into tainted contracts, military brass again are expected to avoid dishing out such drastic punishment, because of the legal, logistical, and public-relations problems that would create.
During the late 1980s and early 1990s, when eight of the top 15 U.S. defense contractors were prosecuted in a barrage of bribery, influence-peddling and illicit Pentagon-document gathering cases, the government collected more than $250 million in fines. Dozens of individuals were convicted. Yet not a single major weapons programs was canceled outright or put out for an entirely new round of bids.
"We ended up getting large civil and criminal penalties, but it's always very hard to rebid or switch horses...when a contractor is already performing" under a suspect contract, according to Washington lawyer and former federal prosecutor Joseph Aronica, who was in charge of many of those earlier prosecutions. Once a weapons system goes into production, Pentagon officials typically raise national security concerns about disrupting output and argue "it would cost the government so much more" to reopen bidding, Mr. Aronica said.
The Chicago aerospace company is bound to face scrutiny in other ways. For example, Boeing increasingly is working as high-level systems integrator, or so-called honest broker, chosen by the Pentagon to assemble technology from a number of other large defense contractors. Competitors are likely to raise new questions about that role.
The latest revelations, however, may not result in the company's being forced to repay funds it has received. Former prosecutors and current investigators familiar with the case believe that Defense Department officials will shy away from seeking large reimbursements.
In its preliminary responses to Ms. Druyun's latest admissions, the Air Force seems to be following that script. Spokesmen have said that the Air Force is willing to consider a variety of "contract remedy options," while stressing that Ms. Druyun's illegal steps to help Boeing amounted to "an isolated case of an individual who engaged in personal misconduct."
Ms. Druyun's close relationship with Boeing stretched back to at least 2000. It included extensive contact with Jerry Daniels, then head of the company's military-aircraft and missile units, according to internal company e-mails and people familiar with the matter. Mr. Daniels couldn't be reached to comment.
Ms. Druyun's admissions last week could also complicate Boeing President and Chief Executive Harry Stonecipher's quest to repair the company's reputation. When he came out of retirement in December following the resignation of Chairman Phil Condit, Mr. Stonecipher was able to position himself as an outsider who was coming in to correct problems that occurred on Mr. Condit's watch.
But the new disclosures about Ms. Druyun's earlier dealings with the company stretch back to a period when Mr. Stonecipher was president and chief operating officer in charge of Boeing's daily operations. In that job, all of Boeing's unit presidents -- including Mr. Daniels -- reported to Mr. Stonecipher. Prosecutors haven't indicated that Mr. Stonecipher was aware of any improper activities, and the 68-year-old executive has said numerous times in recent months that he has "no tolerance for shenanigans of any kind." Mr. Stonecipher left the executive suite in May 2001, but stayed on as vice chairman of Boeing's board until June 2002, when he retired.
The extent of Ms. Druyun's misconduct took Boeing's competitors by surprise as well. Lockheed Martin Corp. and Raytheon Co. lost a three-way race to Boeing in 2001 for a $4 billion contract to modernize C-130 transport aircraft. Raytheon has since sold the unit that bid for the contract and won't contest the award, a spokesman said. Lockheed, which already is suing Boeing for the alleged theft of proprietary rocket documents, said is confident the government will explore the Druyun matter. Boeing has said it is cooperating with investigators separately looking into the rocket documents.
Still, the odds appear to be against any significant corporate restitution. "Other than punching the Air Force in the eye, what a protest gets the companies remains to be seen," said James McAleese, a government contracting lawyer in McLean, Va.
October 5, 2004
Pg. 3
Widening Boeing-Air Force Probe Unlikely To Kill Tainted Programs
By Andy Pasztor, J. Lynn Lunsford and Jonathan Karp, Staff Reporters Of The Wall Street Journal
The widening corruption investigation into Boeing Co.'s dealings with former Air Force acquisition official Darleen Druyun may target additional individuals and could damage the contractor's ability to snare new business. But based on history and the comments of current and former investigators, senior Pentagon officials are expected to stop short of canceling or rebidding multibillion dollar weapons programs.
Ms. Druyun last week was sentenced to nine months in prison for negotiating a job for herself with Boeing while overseeing billions of dollars of Boeing contracts with the Pentagon. She surprised the defense industry and many inside the Pentagon by admitting that she gave preferential treatment to the company years before becoming a Boeing vice president in December 2002. That has set off a military review of the scores of contracts that were awarded under her watch. While Air Force officials say it is too early to predict what punishment will come, some industry officials expect at least a spate of legal challenges by rivals.
But based on the government's past response to major criminal investigations into tainted contracts, military brass again are expected to avoid dishing out such drastic punishment, because of the legal, logistical, and public-relations problems that would create.
During the late 1980s and early 1990s, when eight of the top 15 U.S. defense contractors were prosecuted in a barrage of bribery, influence-peddling and illicit Pentagon-document gathering cases, the government collected more than $250 million in fines. Dozens of individuals were convicted. Yet not a single major weapons programs was canceled outright or put out for an entirely new round of bids.
"We ended up getting large civil and criminal penalties, but it's always very hard to rebid or switch horses...when a contractor is already performing" under a suspect contract, according to Washington lawyer and former federal prosecutor Joseph Aronica, who was in charge of many of those earlier prosecutions. Once a weapons system goes into production, Pentagon officials typically raise national security concerns about disrupting output and argue "it would cost the government so much more" to reopen bidding, Mr. Aronica said.
The Chicago aerospace company is bound to face scrutiny in other ways. For example, Boeing increasingly is working as high-level systems integrator, or so-called honest broker, chosen by the Pentagon to assemble technology from a number of other large defense contractors. Competitors are likely to raise new questions about that role.
The latest revelations, however, may not result in the company's being forced to repay funds it has received. Former prosecutors and current investigators familiar with the case believe that Defense Department officials will shy away from seeking large reimbursements.
In its preliminary responses to Ms. Druyun's latest admissions, the Air Force seems to be following that script. Spokesmen have said that the Air Force is willing to consider a variety of "contract remedy options," while stressing that Ms. Druyun's illegal steps to help Boeing amounted to "an isolated case of an individual who engaged in personal misconduct."
Ms. Druyun's close relationship with Boeing stretched back to at least 2000. It included extensive contact with Jerry Daniels, then head of the company's military-aircraft and missile units, according to internal company e-mails and people familiar with the matter. Mr. Daniels couldn't be reached to comment.
Ms. Druyun's admissions last week could also complicate Boeing President and Chief Executive Harry Stonecipher's quest to repair the company's reputation. When he came out of retirement in December following the resignation of Chairman Phil Condit, Mr. Stonecipher was able to position himself as an outsider who was coming in to correct problems that occurred on Mr. Condit's watch.
But the new disclosures about Ms. Druyun's earlier dealings with the company stretch back to a period when Mr. Stonecipher was president and chief operating officer in charge of Boeing's daily operations. In that job, all of Boeing's unit presidents -- including Mr. Daniels -- reported to Mr. Stonecipher. Prosecutors haven't indicated that Mr. Stonecipher was aware of any improper activities, and the 68-year-old executive has said numerous times in recent months that he has "no tolerance for shenanigans of any kind." Mr. Stonecipher left the executive suite in May 2001, but stayed on as vice chairman of Boeing's board until June 2002, when he retired.
The extent of Ms. Druyun's misconduct took Boeing's competitors by surprise as well. Lockheed Martin Corp. and Raytheon Co. lost a three-way race to Boeing in 2001 for a $4 billion contract to modernize C-130 transport aircraft. Raytheon has since sold the unit that bid for the contract and won't contest the award, a spokesman said. Lockheed, which already is suing Boeing for the alleged theft of proprietary rocket documents, said is confident the government will explore the Druyun matter. Boeing has said it is cooperating with investigators separately looking into the rocket documents.
Still, the odds appear to be against any significant corporate restitution. "Other than punching the Air Force in the eye, what a protest gets the companies remains to be seen," said James McAleese, a government contracting lawyer in McLean, Va.