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GAO-03-324R: 

United States General Accounting Office: 
Washington, DC 20548: 

January 27, 2003: 

The Honorable Howard L. Berman: 
House of Representatives: 

Subject: Missile Defense: Events Related to Contractor Selection
for the Exoatmospheric Kill Vehicle: 

Dear Mr. Berman: 

In February 2002, we issued a report regarding early tests of the 
sensors being developed for the exoatmospheric kill vehicle[Footnote 1] 
(EKV) planned for use in missile defense programs.[Footnote 2] As 
described in that report, the Department of the Army, acting on behalf 
of the Ballistic Missile Defense Organization (BMDO)[Footnote 3] was 
administering two parallel research and development contracts for EKVs, 
one with Raytheon and one with Boeing. BMDO’s plan was to conduct a 
competition between the two teams developing an EKV to select one for 
further development and flight testing. 

By 1997, BMDO had decided to use a Lead Systems Integrator (LSI) 
contractor to manage the National Missile Defense program, rather than 
using the Army for this purpose. Boeing was awarded the LSI contract in 
April 1998, and was directed to complete the competition to select an 
EKV contractor by February 1999. Thus, in its capacity as LSI, Boeing 
was tasked to select either Raytheon or another Boeing unit to build 
the EKV. For this report, we will refer to the Boeing unit serving as 
the LSI contractor as “Boeing LSI,” and to the Boeing unit competing 
for the EKV subcontract as “Boeing EKV.” 

You asked us, as a follow-on to our recent review of the early sensor 
tests, to look into the circumstances surrounding Boeing LSI’s 
selection of Raytheon’s EKV device for further testing. Specifically, 
you asked us to: 

* determine whether there was a misuse of Raytheon’s proprietary 
information by the Boeing EKV team, as had been reported in the media, 
and whether these events affected the planned competition for an EKV 
contractor; 

* determine whether a request for proposals (RFP) was ever prepared, 
whether proposals were submitted, whether formal criteria were used to 
evaluate the two systems, and whether a formal technical comparison or 
analysis of the two systems was used to select between them; 

* describe the basis for the selection of Raytheon; 

* identify whether the decision was made by BMDO or Boeing LSI, and, if 
the decision was made by Boeing LSI, determine the extent to which BMDO 
was aware of the circumstances surrounding the decision; and; 

* identify the amount of money the U.S. government spent to develop the 
two EKV systems that were to be competed against each other and, if one 
of the contractors was excluded from the competition, determine whether 
any effort was made to recoup the money paid to that contractor. 

During the months of July through September 2002, we developed the 
facts reflected in the narrative that follows using contemporaneous 
documents to the extent possible. In some instances, we contacted by 
telephone officials who could clarify contemporaneous documents. 
Finally, we conducted interviews with the key individuals involved in 
these matters. Our interviews included government officials and the 
contractor decisionmaker charged with making the EKV selection 
decision. 

Results in Brief: 

In late 1998—after 8 years of funding and administering parallel 
research and development contracts for an EKV for National Missile 
Defense and 2 months prior to the scheduled completion of the 
competition—BMDO abandoned its planned competition to select the most 
promising EKV for use in follow-on missile defense programs. This 
decision was made by Boeing LSI, with BMDO’s concurrence. This decision 
was made shortly after Boeing disclosed to the government that employees
of its EKV team had obtained and misused proprietary information 
developed by the other EKV competitor, Raytheon. 

Our review has not located any document memorializing the selection of 
Raytheon to build the EKV, and both BMDO and Boeing have advised us 
that no such document was created or exists. As a result, we have 
reviewed contemporaneous e-mails and correspondence exchanged between 
Boeing and BMDO discussing these events, and near-contemporaneous 
descriptions of the selection decision prepared by government officials 
involved in the subsequent discussions about whether the component of 
Boeing responsible for its EKV effort should be debarred from federal
government contracting,[Footnote 4] and about the pursuit of a 
financial settlement. We have supplemented these contemporaneous 
materials with interviews of the decisionmakers. This review has led us 
to the following findings: 

* The planned competition was abandoned after BMDO, Boeing LSI, and
Raytheon learned of the Boeing EKV team’s misuse of Raytheon proprietary
information, specifically a plan for testing Raytheon’s EKV’s software 
that was submitted by Raytheon to the Army and later discovered in the 
offices of the Boeing EKV team. 

* The final RFP was not issued, proposals were not submitted, no formal
criteria were used to evaluate the two systems, and there was no formal
technical comparison or analysis used by the decisionmaker to select the
EKV. 

* Raytheon received the award: 
- after Boeing LSI and BMDO were unable to mitigate, to Raytheon’s
satisfaction—which BMDO made a condition of moving forward—the
possible competitive harm arising from the Boeing EKV team’s misuse
of Raytheon’s proprietary information; 
- after Boeing LSI and BMDO concluded that failing to obtain Raytheon’s 
concurrence might hamper BMDO’s ability to complete the testing of 
National Missile Defense in time for a planned presidential deployment 
decision in June 2000; and; 
- after Boeing LSI and BMDO concluded that any risk in selecting 
Raytheon without a technical comparison with Boeing’s EKV could be
mitigated by continuing to fund Boeing’s EKV, at a lower amount as a
“hot back-up.”[Footnote 5] 

* Both the decision to abandon the planned competition and the decision 
to award to Raytheon by default were made by Boeing LSI, with BMDO’s
concurrence. 

* At the point when the competition was abandoned, the U.S. government 
had spent approximately $400 million each, or a total of $800 million, 
to develop and test the Raytheon and Boeing EKVs. Although several 
government officials recommended debarring a component of Boeing from 
federal government contracting, or pursuing a financial settlement from 
the company, all such recommendations were ultimately withdrawn. 

With respect to the decision to award the EKV subcontract to Raytheon, 
both Boeing LSI and BMDO decisionmakers told us, during interviews 
conducted during the summer of 2002, that the decision was made after 
they concluded that either system was sufficiently advanced to permit 
its selection for further flight testing. In addition, although not 
reflected in any contemporaneous documents we have seen, the Boeing
LSI decisionmaker told us that his decision was also based on his 
concern that software development and testing for the Boeing EKV was 
lagging behind schedule. He explained that this caused him to be 
concerned that selection of Boeing’s EKV might delay the program’s 
ability to complete sufficient testing in time to permit a presidential 
deployment decision planned for June 2000. 

Regarding the efforts to recoup the monies paid to Boeing to develop an 
EKV for the abandoned competition, we learned that the Department of 
the Army and BMDO explored the potential for a financial recovery from 
Boeing, but the effort was ultimately abandoned. Consideration was also 
given to a civil or criminal prosecution of Boeing, which was declined 
by a U.S. Attorney, and to debarment of a component of the company, 
which was also abandoned. Boeing terminated, or otherwise reprimanded, 
several of the EKV team employees involved in the misuse of Raytheon’s 
proprietary information, and three of the Boeing employees were 
subsequently debarred by the Air Force from participating in government 
contracts—one for 2 years, and two for 1 year. 

Events Related To Contractor Selection For The EKV: 

In October 1990, the Department of the Army’s Space and Missile Defense 
Command (acting as an agent for BMDO) awarded three parallel contracts 
for the design, development, and demonstration testing of sensor 
designs for an EKV to be used in National Missile Defense. These 
contracts contemplated one or more “downselects” to eventually choose 
one contractor to build an EKV using the successful design. The 
original awardees were Martin Marietta (eliminated in an initial 
“downselect” in 1995), Hughes Missile Systems Company (now Raytheon), 
and Rockwell International (now Boeing).[Footnote 6] 

By 1997, BMDO had decided to choose an LSI contractor to integrate and 
manage the various components being developed for the National Missile 
Defense system. These components included an Upgraded Early Warning 
Radar, an X-Band Radar, the Ground-Based Interceptor, and Battle 
Management/Command, Control and Communications capability. The Ground-
Based Interceptor is the “weapon” of the National Missile Defense 
system; it consists of the EKV discussed above, a booster rocket to 
deliver the EKV to the approximate intercept location, and ground
command and launch equipment. Upon award of this integration and 
management contract (the LSI contract described above), BMDO planned to 
consolidate the management of each component of National Missile 
Defense under its control using its LSI contractor. 

BMDO completed the competition for an LSI contractor on April 30, 1998, 
with an award to Boeing.[Footnote 7] One of Boeing’s first, and most 
pressing, tasks was to develop a plan for, and to complete, the 
competition for a single EKV contractor. Since one of the EKV 
development contractors was also a component of Boeing, award by BMDO 
of the LSI contract to Boeing created an inherent organizational 
conflict of interest. BMDO’s contract with Boeing LSI directed the 
company to take steps to address this conflict of interest, and to do 
so as part of its planning to complete the EKV competition.[Footnote 8] 

On July 9, 1998, just over 2 months after winning the LSI contract, 
Boeing submitted to BMDO a draft plan for the EKV competition. This 
plan outlined a formal competition between the EKV contractors, 
addressed the evaluation of technical and cost proposals, and 
identified certain safeguards to ameliorate the conflict of interest
inherent in permitting Boeing LSI to select between the Boeing and 
Raytheon EKV teams. Although Boeing LSI revised and resubmitted this 
plan for the EKV competition based on input from BMDO officials, the 
plan was never used, proposals were neither requested nor received, and 
the anticipated evaluation of the competing EKV systems was never made. 
Instead, because of the developments set forth below, BMDO directed 
Boeing LSI not to request proposals. 

The Disclosure and Misuse of Raytheon’s Proprietary Information: 

As Boeing LSI and BMDO were working through the details of a formal 
source selection plan, the Raytheon and Boeing EKV teams were 
continuing their research under the contracts administered by the 
Army’s Space and Missile Defense Command. Both teams were also actively 
preparing for the upcoming competition. 

On July 8, 1998, in support of ongoing EKV testing, Raytheon provided 
to Army representatives a document titled “Software Test Plan for the 
Hover Test of the Exoatmospheric Kill Vehicle Subsystem.” This 68-page 
document was provided during a meeting between Raytheon and Army 
officials in Tucson, Arizona. The face of the document indicated that 
it was prepared by Raytheon for the Army, and every page of the 
document contained the legend, “Unclassified/Competition Sensitive.” 

Less than 2 weeks later, on Monday, July 20, a member of the Boeing EKV 
proposal team telephoned an attorney in Boeing’s Law Department to 
report that he had just found the above-described Raytheon Software 
Test Plan on the floor of the Boeing EKV team’s conference room, within 
Boeing’s Downey, California, facility. After securing the document and 
conducting a preliminary review, the Boeing attorney notified Raytheon 
of the discovery, in a July 28 letter, advising that the document had
been found in an unmarked envelope, appeared to have been slipped under 
the conference room door, and that the company had been unable to 
determine how it arrived.[Footnote 9] In addition, the Law Department 
began a more detailed in-house review of the discovery of the document. 

In response to Boeing’s notification to Raytheon that Raytheon’s 
Software Test Plan had been discovered in the offices of Boeing’s EKV 
proposal team: 

* Raytheon complained to Army officials, in an August 3 letter, about 
the disclosure and requested an investigation; 

* the Army’s Procurement Fraud Division requested a review by the Army’s
Criminal Investigation Command regarding how a Raytheon document 
provided to the Army less than 2 weeks earlier ended up in a Boeing
conference room; and; 

* BMDO attempted to address, in a September 29 letter, Raytheon’s
“heightened” concerns that discovery of its proprietary materials in 
Boeing’s EKV offices highlighted the problematic conflict of interest 
caused by using Boeing LSI to select between the Boeing and Raytheon 
EKV teams. 

The full extent to which Boeing’s EKV team’s employees had misused 
Raytheon’s data, however, was apparently unknown to any of the parties 
until late October 1998. During follow-up interviews conducted at 
Boeing’s Downey, California, facility, during the week of October 19, 
the company’s in-house attorneys learned—apparently for the first 
time—that a small group of its EKV proposal team members had actually 
discovered the Raytheon software test plan on Friday, July 17—not
Monday, July 20, as previously disclosed. In addition, the in-house 
attorneys determined from their interviews that Boeing EKV team 
employees had misled the company’s Law Department about when the 
document was found, how it was handled, and whether the employees had 
surrendered all copies. 

Specifically, the in-house review revealed that: 

* certain Boeing EKV team employees had prepared an analysis of 
Raytheon’s software test plan over the weekend prior to advising Boeing 
attorneys of its discovery on Monday; 

* these employees had not turned over all of the copies of the test 
plan to the Law Department, but had retained a copy of the test plan 
and of their analysis; and; 

* these employees had used these materials surreptitiously for several 
weeks after Boeing’s disclosure of the discovery of the document to 
Raytheon, and after Boeing had represented to Raytheon that the 
document had been secured. 

In Boeing’s own words, “[t]he assumptions about Raytheon’s avionics 
design reflected in the analysis were thereafter reflected in several 
program-wide briefings addressing, among other things, Raytheon’s 
anticipated Avionics design.”[Footnote 10] 

During the last week of October 1998, the President of Boeing’s Space 
and Communications Group telephoned the Director of BMDO to advise him 
of the misuse of Raytheon’s proprietary data by Boeing’s EKV proposal 
team that had been uncovered during the in-house review. 

Efforts to Preserve the Competition: 

Once the Director of BMDO was notified in late October that the Boeing 
EKV team had misused Raytheon’s proprietary data, the fact that Boeing 
LSI was poised to release the RFP to implement the competition 
triggered a need for near-immediate resolution of the controversy. Both 
contemporaneous materials and our interviews indicate that BMDO needed 
to quickly complete the selection of an EKV contractor and proceed to 
flight tests of the device to have any hope of complying with the “3+3”
acquisition strategy that had been adopted for National Missile 
Defense. This strategy called for 3 years of development and 
demonstration of the feasibility of the system to permit a presidential 
deployment decision planned for June 2000. If the President decided to 
deploy the system in June 2000, the program allowed 3 years for 
deployment (which was later extended to 5 years). 

Letters and e-mails generated among the government, Boeing, and 
Raytheon during November 1998 show two major efforts. First, Boeing 
attempted to persuade BMDO that its EKV team had a sufficient record of 
integrity and business ethics to be considered a responsible 
prospective contractor appropriately eligible for the award of future 
contracts. Second, both BMDO and Boeing attempted to convince 
representatives of Raytheon that Boeing LSI could appropriately address 
the conflict of interest raised by using Boeing LSI to select between 
the Boeing and Raytheon EKV teams, as well as take steps to mitigate 
the harm to the competition caused by the misuse of Raytheon’s 
proprietary information. 

With respect to whether the Boeing EKV team could be considered a 
responsible government contractor, the Director of BMDO delegated the 
decision to Boeing LSI. In a November 2 letter, BMDO’s Director asked 
Boeing LSI to provide a written assessment of the Boeing EKV team’s 
responsibility, identify what measures might be taken to mitigate the 
harm to the competition, and identify what alternatives remained if the 
competition could not be restored. 

One of the first of many responses to BMDO’s November 2 letter was 
described in a November 6 letter from a Boeing vice president to the 
Air Force’s Debarment Authority.[Footnote 11] This letter advised that 
Boeing was terminating 3 employees for their involvement in the misuse 
of Raytheon’s software test plan and that a fourth employee was being 
suspended for 30 days without pay.[Footnote 12] Based on these actions 
and others—including an advisory review of the Boeing EKV team’s 
responsibility by an outside law firm—Boeing LSI’s project manager 
eventually provided BMDO, in a December 7 letter, a written finding 
that its EKV team should be considered a “presently responsible 
offeror.” By December 7, however, it appears the “downselect” decision 
had already been made; thus, the responsibility of the EKV team was 
relevant to the continuation of Boeing as a back-up source, not as the
provider of the EKV for future flight tests. 

With respect to the second major effort during November 1998—that of 
convincing Raytheon that the misuse of its data could be remedied and 
the competition should proceed—BMDO’s and Boeing’s efforts reached an 
impasse. By November 11, Boeing LSI’s Project Manager represented to 
the Army Major General serving as BMDO’s National Missile Defense 
Program Executive, via e-mail, that Raytheon was no longer willing to 
discuss Boeing’s approach to implementing a “firewall” between Boeing 
LSI and the Boeing EKV team. In this e-mail, Boeing LSI’s Project 
Manager also advised the National Missile Defense Program Executive 
that Boeing had decided to resolve any remaining firewall issues in 
Raytheon’s favor; to proceed with release of the RFP to the two EKV 
competitors, despite Raytheon’s objections; and to do so at 3 p.m. on 
November 12, “unless we receive a request from the government not to do 
so.” 

Both Boeing LSI’s Project Manager and BMDO’s National Missile Defense 
Program Executive confirmed during interviews that BMDO directed Boeing 
not to release the RFP, pending the outcome of Boeing’s efforts to 
resolve the impasse with Raytheon. In fact, our review shows that, from 
this point forward, BMDO made Raytheon’s concurrence with Boeing’s 
attempts to mitigate the harm to the competition a condition for 
resuming the competition.[Footnote 13] 

During our interviews, both decisionmakers stated that after halting 
the RFP and attempting again to persuade Raytheon to acquiesce to plans 
to move forward with the competition, their last-ditch efforts failed 
and it became increasingly clear that there was no other choice but to 
abandon the competition. Thus, the RFP was never released.[Footnote 
14] 

The “Downselect” Decision: 

With respect to the selection decision itself, we have not located a 
contemporaneous document memorializing the downselect decision, and 
both Boeing and BMDO have advised us that none exists. Instead, both 
Boeing and BMDO advised that the selection decision is evidenced by the 
subcontract that was eventually negotiated between Boeing LSI and 
Raytheon. 

Both the Boeing LSI Project Manager and BMDO’s National Missile Defense 
Program Executive advised us that the selection decision was ultimately 
made by Boeing LSI’s Project Manager; that the decision was conveyed to 
BMDO’s National Missile Defense Program Executive, by telephone, on or 
about December 1, 1998; and that BMDO concurred with the decision. In 
addition, both decisionmakers defended the decision to select the 
Raytheon EKV for flight testing, and to fund at a lesser-level the 
Boeing EKV as a “hot back-up” until 3 months after the fourth flight 
test.[Footnote 15] Both decisionmakers expressed the view that either 
device was sufficiently advanced to permit its selection for further 
flight testing, that the decision was a reasonable resolution of the 
matter given the time pressures associated with the need to complete 
testing of the system to permit the June 2000 presidential deployment
decision, and that the decision represented a sound attempt to mitigate 
the risk associated with selecting the Raytheon device without the 
benefit of a formal competition. 

Although not reflected in any contemporaneous documents, Boeing LSI’s 
Project Manager stated during our interview that the selection decision 
was also based on his concern that software development and testing of 
the Boeing EKV was lagging behind schedule. He explained that this led 
him to have concerns that selection of Boeing to build the EKV might 
delay the program’s ability to complete sufficient testing in time for 
the June 2000 presidential deployment decision. 

Finally, while it appears, as indicated above, that there was no 
written documentation of the selection decision, other contemporaneous 
documents support the timeframe and events that were recounted in our 
interviews with the decisionmakers. No letter or e-mail we have seen, 
created prior to November 30, 1998, suggests that the situation had 
been resolved, while several items generated after this date indicate
that the decision had been made. In fact, in a handwritten annotation 
on the face of a December 9 letter from the Director of BMDO to the 
President of Boeing’s Space and Communications Group, BMDO’s Director 
thanks Boeing for resolving this issue. 

Thus, we find, based on our review of the record, that the decision to 
select Raytheon to build the EKV for National Missile Defense: 

* was made on or about December 1, 1998; 

* was made after the competition was abandoned; 

* was made without soliciting or reviewing proposals from the EKV
competitors; 

* was not based on any formal comparison of the relative technical 
merit or proposed cost of the two EKVs; 

* was driven primarily by the inability to mitigate the competitive 
harm caused by the misuse of Raytheon’s proprietary data and concerns 
that failure to either select—or satisfy—Raytheon would cause 
significant slippage in the planned schedule designed to permit a 
presidential deployment decision in June 2000; and; 

* was made after Boeing LSI and BMDO concluded that either system was
sufficiently advanced to permit its selection for further flight 
testing and that any risk in selecting Raytheon without a technical 
comparison with Boeing’s EKV could be mitigated by continuing to fund 
the Boeing system, at a lower amount, as a “hot back-up.” 

Efforts to Recover Funds: 

Between January 1999 and July 2002, the Department of the Army and BMDO
explored the potential for a financial recovery from Boeing, but the 
effort was ultimately abandoned. In addition, consideration was given 
to a civil or criminal prosecution of Boeing, and to the possibility of 
debarring the business unit of Boeing responsible for the EKV effort. 
Each of these considerations are set forth in greater detail below. 

In February 1999, representatives of the Army's Procurement Fraud 
Division and its Criminal Investigation Command met with 
representatives of the U.S. Attorney's Office of Public Corruption and 
Government Fraud, Central District of California, in Los Angeles, to 
request review of the case for possible civil or criminal action.
According to the Army's Criminal Investigative Command report, the U.S. 
Attorney declined to pursue a civil action, and in a May 11, 1999, 
letter, the U.S. Attorney declined to pursue a criminal prosecution 
"based on insufficient evidence of criminal wrongdoing." 

Concurrently, the Army recommended debarment proceedings against the 
Boeing employees involved in the wrongdoing, and against Boeing's 
Electronics Systems and Missile Defense Group. The Army also considered 
the alternative recommendation of a monetary settlement commensurate 
with the damages suffered by the government. 

The Army’s assessment of damages focused on: the loss of the integrity 
of a planned competition that had been carefully maintained for 8 years 
at great administrative expense; the loss of the benefit of a head-to-
head “best value” comparison of two technical approaches developed at 
the cost of approximately $400 million each; and the loss of the 
potential savings that might have been achieved by the abandoned 
competition, which the Army suggested should be valued at approximately 
25 percent of the cost of Raytheon’s EKV. However, given the difficulty 
of computing damages, the Army never assigned a precise quantum to the 
monetary recovery objective. 

In concurrence with long-standing Department of Defense policy to place
responsibility for debarment decisions in the hands of the agency with 
the greatest financial interest in the outcome, this matter was 
referred first to BMDO, with responsibility for action ultimately 
assigned to the Air Force debarment official. BMDO recommended against 
debarring any division of Boeing—noting that the employees involved had 
been terminated and were the subjects of individual debarment actions 
by the Air Force. In contrast to the Army, BMDO assigned a precise 
quantity to its proposed financial settlement, although all agreed that 
the BMDO-recommended settlement was lower than that wanted by the Army.
Specifically, BMDO argued for recoupment of $6.6 million to $13.5 
million. BMDO’s proposed recoupment was described as an estimate of the 
additional potential award fee payable to Boeing LSI as a result of 
paying higher costs for the Raytheon EKV subcontract than would have 
been paid had Raytheon’s costs been subjected to the downward pressure 
of competition. 

In July 2002, BMDO (now the Missile Defense Agency) abandoned recovery 
efforts because of litigation risks associated with proving damages, as 
well as significant anticipated litigation costs, and the belief that 
litigation was inconsistent with its partnership with Boeing as the LSI 
contractor.[Footnote 16] In addition, BMDO determined that the 
termination and debarment of the employees involved had largely 
resolved the matter. 

A draft of this report was given to representatives of the Department 
of Defense. The Department did not elect to provide formal comments. 
Instead, the Department’s official representative provided, via e-mail, 
informal technical comments, portions of which were accepted where 
their inclusion would improve the accuracy of the report. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from the date of this letter. We will then send copies to other 
appropriate congressional committees; the Secretary of Defense; and the 
Director, Missile Defense Agency. We will make copies available to 
others upon request. In addition, the report will be available on GAO’s 
webpage at [hyperlink, http://www.gao.gov]. 

If you, or your staff, have any questions about this report, please 
contact me at (202) 512-5400, or Ralph White, Deputy Assistant General 
Counsel, at (202) 512-8278. In addition, Adam Vodraska, Senior 
Attorney, and David Hand, Senior Analyst, made key contributions to 
this report. 

Sincerely yours, 

Signed by: 

Anthony H. Gamboa: 
General Counsel: 

[End of section] 

Footnotes: 

[1] The EKV is the intercept component of the former National Missile 
Defense program. The EKV is mounted on a defensive missile, is 
delivered by that missile to the midcourse (or exoatmospheric)
phase of an incoming missile’s trajectory, and uses a seeker in a 
separate flight package to guide and propel itself into an incoming 
enemy warhead, thus destroying the warhead above the earth’s
atmosphere. During our preparation of this report, the Missile Defense 
Agency announced, in September 2002, that it was pursuing concepts for 
a new-generation EKV. 

[2] See Missile Defense: Review of Allegations about an Early National 
Missile Defense Flight Test, GAO-02-125 (Washington, D.C.: Feb. 28, 
2002). 

[3] On January 2, 2002, BMDO was renamed the Missile Defense Agency. In 
addition, National Missile Defense and several other programs have 
recently been renamed. National Missile Defense is now referred to as 
the Ground-Based Midcourse System, which, together with Sea-Based 
Midcourse Systems, comprise the Midcourse Defense Segment. For this 
report, we will use the names in place at the time of these events. 

[4] Debarment and suspension are discretionary sanctions available to 
government agencies, under policies set forth at Federal Acquisition 
Regulation (FAR) Subpart 9.4, which permit a finding that a government 
contractor should be deemed ineligible for the award of future 
contracts as a means to protect the government’s interest in awarding 
contracts to responsible contractors only. FAR § 9.402. The debarment 
and suspension process anticipates “prompt reporting, investigation, 
and referral to the debarring official of matters appropriate for that 
official’s consideration.” FAR § 9.406-3. The process also anticipates 
providing contractors an opportunity to respond to proposed debarments. 
Id. 

[5] This back-up funding of Boeing’s EKV continued at a rate of 
approximately $4 million per month until 3 months after the fourth EKV 
flight test, which took place in January 2000. 

[6] As illustrated above, none of the entities originally selected to 
design EKV sensors for National Missile Defense exist in the same form 
today due to consolidations in the defense industry during the 1990s. 

[7] Boeing’s competitor for the LSI contract was a joint venture of 
Lockheed-Martin, Raytheon, and TRW. 

[8] In addition, both competitors for the LSI contract were required to 
address in their proposals their plans for handling the organizational 
conflicts of interest that would arise while serving as the LSI 
contractor. BMDO’s Director told us that Boeing was selected for the 
LSI role, in part, based on the strength of its response in this area. 

[9] The source of the Raytheon document found in the offices of the 
Boeing EKV team has not been established, even though the matter was 
investigated by several entities, including the Army Criminal 
Investigation Command. The contracting officer’s debarment report, as 
well as other materials reviewed (including the Army Criminal 
Investigation Command report), states that Army personnel, and 
independent contractor personnel, visited Boeing’s Downey facility from 
July 14 to 16, 1998, for a software readiness review in the offices of 
the Boeing EKV team. Since the document at issue involved Raytheon’s 
software testing plans, and since the Army team was meeting with the 
Boeing EKV team about Boeing’s plans for testing its software, Army 
officials opined that the document may have been inadvertently left 
behind by a member of this team. 

[10] “Report Re Raytheon Document Incident,” Office of the General 
Counsel Memorandum, The Boeing Company, at 3. 

[11] The Air Force’s Debarment Authority was involved in this matter in 
his capacity as the Department of Defense official charged with 
monitoring Boeing’s compliance with government ethics requirements. The 
Air Force’s role as a monitor of Boeing had been established by an 
administrative agreement between the Air Force and Boeing, which was 
designed to address the company’s ongoing responsibility as a 
government contractor given earlier ethical issues unrelated to this 
matter that involved companies subsequently acquired by Boeing. 

[12] Three of these employees were subsequently debarred by the Air 
Force from participating in government contracts. 

[13] As early as November 12, an e-mail from the Boeing Vice President 
mentioned above, to the Air Force Debarment Authority, advised that 
Boeing had indicated its willingness to withdraw but was still trying 
to implement BMDO’s stated desire to preserve the competition if 
possible. 

[14] Draft RFPs were released and discussed with the parties on August 
21 and October 21, 1998. A bidder’s conference was held on September 
16. The discussion above involves the release of the final RFP, which 
would have triggered the requirement to submit proposals. 

[15] As indicated above, the fourth flight test took place in January 
2000. BMDO’s National Missile Defense Program Executive advised that he 
agreed to fund the Boeing EKV as a “hot back-up” to the Raytheon 
device; the funding was at the level of approximately $4 million per 
month, until 3 months after the fourth flight test. In addition, the 
selection plan prepared for BMDO by Boeing LSI anticipated funding the 
unsuccessful EKV contractor as a back-up prior to the disclosure of the 
Boeing EKV team’s misuse of Raytheon’s proprietary information. 

[16] For the record, we note that BMDO’s decision to abandon pursuit of 
monetary damages was based, in part, on advice received from the Army 
that the resources required to prevail in any litigation against 
Boeing, together with the “very difficult evidentiary issues,” created 
“the risk of unsuccessful litigation.” Earlier, the Army had endorsed 
the recommendation to pursue either debarment of a component of Boeing, 
or alternatively, a financial settlement. 

[End of section] 

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