The Arizona senator scrutinizes the way the contract was set up for FCS, the nation's second-largest military program.

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WASHINGTON — The last time Sen. John McCain started questioning the cost and structure of a massive Pentagon contract in a Senate hearing, he was initially written off as a grump. But eventually, Boeing lost a $23 billion deal to lease tankers to the Air Force.

Yesterday, in a Senate hearing, McCain tore into the nation’s second-largest military program, called Future Combat Systems (FCS), which over time could cost $120 billion. This time Boeing and the Pentagon were hanging on his every syllable.

At stake is a $21 billion contract, of which Boeing, as prime contractor, gets the lion’s share. The FCS program is billed by the Pentagon as an “overwhelmingly lethal” weapons system integrating battlefield computers into one vast communications network. It supports 550 workers at Boeing’s Kent site and, according to the company, puts roughly $175 million into Washington state’s economy each year.

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McCain, R-Ariz., has complained that the contract was not structured according to standard procurement procedures, an allegation similar to the one that began the investigation of the tanker deal. The contract does not provide for enough oversight and scrutiny, and gives the companies too much leeway on pricing, he said.

The hearing was packed with defense contractors, their lobbyists and public-relations executives, who were watching it carefully for several reasons.

This session was McCain’s first hearing as chairman of the powerful Airland Subcommittee of the Armed Services Committee; he has vowed to redo the mammoth military-procurement process, and this was his first step. It was also an opportunity for the defense industry to see whether Boeing had helped its relationships on Capitol Hill by firing Harry Stonecipher last week.

At the end of the hearing, which was essentially a one-man show, McCain volunteered that his new review of the FCS was not directed against Boeing. In fact, McCain all but congratulated Boeing for dumping its CEO.

“Boeing went through a very wrenching process,” he said, regarding the past year’s controversies. “I think they’ve made some significant efforts to clean up their act here,” adding that ousting Stonecipher continued that effort.

McCain has not said what he’d like to see happen with the FCS contract, but with committee support, he could make the Pentagon rewrite the contract. That would cause delays in the military’s modernization program, and could cost Boeing.

The FCS contract is led by Boeing and SAIC of San Diego. Boeing’s subcontractors include its competitors Lockheed and Raytheon.

The FCS program’s goal is to integrate manned and unmanned air and land fighting units with global wireless communications. The Pentagon says it will coordinate battlefield communications, help troops locate the enemy, and substantially reduce deaths and injuries from “friendly fire.”

FCS is “the most significant advance in giving troops the ability to know friend and foe, to avoid the accidents that occur in the fog of war,” said Randy Harrison, a spokesman for Boeing’s FCS program. The project has already been restructured a couple of times, and the military has requested a 17 percent increase for next year’s budget.

McCain’s main objection is that the Pentagon awarded the contract under a special method known as “other transaction authority,” which reduces government oversight of the contract.

The method was developed to provide flexibility for smaller research projects, but was not intended for major suppliers such as Boeing, the second-largest defense contractor in the U.S., critics say. They complain that it circumvents some controls against waste and arbitrary price increases, as well as regulations that prohibit military officials from discussing future employment with suppliers with whom they’ve recently negotiated procurement contracts.

Ken Boehm, director of The National Legal and Policy Center, a watchdog group, said these loopholes open the way to cost overruns and pricing irregularities. Boehm’s group was instrumental in the tanker investigation and worked closely with the federal government on it.

He told the Senate panel that “Boeing is an exceptionally poor choice” to integrate all the other contractors on the FCS project because the lead integrator “has to have the trust of the government and of the other firms.”

The Government Accountability Office had raised the issue of significant risks in this contracting process. Its representative said that the Army’s decision to proceed with the contract had been “premature” because the individual components had not been fully examined before the contract was awarded.

McCain is likely to pursue amendments to the FCS, said Boehm, “to prevent its final cost from spiraling out of control.”

Boeing spokesmen declined to comment on the contract.

Alicia Mundy: 202-662-7457 or amundy@seattletimes.com