Abrupt Halt to Sgt. York Pact Called Costly

Scrap heaps of exotic weapons parts, worth hundreds of millions of dollars, are all that remain of the controversial Sgt. York anti-aircraft gun system that Defense Secretary Caspar W. Weinberger canceled last August.

To many defense industry observers, they are a monument to mishandling of the largest contract cancellation in history.

Senior Army officials argued to Weinberger in classified meetings only five days before the cancellation that an abrupt stoppage was unwise and uneconomic, Army officials close to the program have told The Times.

Mounting Headaches

Now, as the defense Establishment contends with the mounting headaches of the Sgt. York cancellation, it appears that those Army officials may have been on the mark: For very close to the same amount that it cost to cancel the program, the government could have completed a large arsenal of the guns.

But that point was apparently lost amid the political firestorm that surrounded Sgt. York. Congressional critics branded it a lemon because of its alleged poor performance in secret tests. Almost since its inception in the late 1970s, the Sgt. York program--named for World War I hero Alvin York--had drawn considerable negative publicity linked to early tests showing that the gun was unreliable and sometimes performed poorly.

Weinberger agreed that the gun was inadequate, but, in canceling Sgt. York, he maintained that it was still better than any existing gun to defend U.S. soldiers against Soviet helicopters.

“Politically, I am sure the secretary felt he had no choice but to cancel the whole program,� one official close to the project said. “The political controversy had to be a burden that was too heavy to carry.�

The 65 Sgt. York guns completed before the cancellation by prime contractor Ford Aerospace of Newport Beach will never be used by the Army. Instead, the Pentagon is trying to find alternative uses for the Sgt. York scrap, such as guns, radars and tank chassis. But much of it will still end up simply abandoned or sold as salvage.

Defense Department spokesmen said they had no comment on Weinberger’s decision to overrule the Army’s recommendation to complete the guns rather than scrap them.

Since the cancellation, it has also become clear that the process of undoing the Sgt. York program will be longer and more painful than anybody envisioned.

Cancellation costs have been driven up by bureaucratic bungling in settling contract claims, defense contractors charge. There have been substantial delays in resolving hundreds of claims by Sgt. York subcontractors, some of whom have complained angrily all the way to the White House.

So far, only one claim out of as many as 1,500 that are expected has been fully approved and paid by the Defense Contract Administration Service, which is in charge of terminating the Sgt. York program. The service has paid out $620,000, primarily in partial payments of claims still being processed.

Future Claims Pool

The Army had spent $1.2 billion on the weapon at the time it was canceled, according to the contract administration. A pool of at least several hundred million dollars exists to settle future claims.

But the Pentagon will require an additional three to four years of paper work and negotiation by ranks of government and industry employees working at taxpayer expense to fully process the claims, said Stephen P. Simmons, a contract administration official in Los Angeles.

At the heart of the problem is a paper-work system designed to prevent false or inflated claims, but it is so complex that many small subcontractors contacted by The Times said they have encountered a “rat race� of red tape.

“I don’t care how good your imagination is, it isn’t good enough to imagine how complicated this process is,� said Emmett Wheeler, the Sgt. York program manager at Westinghouse Corp., a major subcontractor. “A lot of our suppliers are screaming for their money. You can’t blame them. We have had to go to bat for them.�

The morass into which the Sgt. York termination has sunk was foreseen by many defense experts, who felt beforehand that Weinberger’s order was ill-timed.

At the time of the project’s cancellation, many Sgt. York suppliers were just completing huge batches of parts under the second and third options of their contracts. Indeed, the Sgt. York program had progressed so far into production that enough parts and large subsystems had been produced to assemble hundreds of the guns.

Westinghouse Work

For example, Westinghouse had delivered 200 of the sophisticated radar devices that directed the Sgt. York guns, at a cost of $140 million, said Wheeler, the Westinghouse program manager. The firm was working under its third option, worth an additional $90 million, when the termination order was issued. The work had progressed so far that Westinghouse now expects to file a claim for more than 50% of the $90 million, Wheeler said.

Similarly, Hughes Aircraft Co., which produced a laser range finder for the Sgt. York, had turned out 150 sets before the termination order arrived. Its original contract was for $65 million, a Hughes spokesman said. The company now expects that its final cost to close out the operation will be $60 million, the spokesman said.

Many Army leaders had predicted that such settlement claims would be very high. The Army told Weinberger in a classified report submitted last August that 263 Sgt. York guns could be built for an additional $200 million. That is close to the amount expected to be required to terminate the program, according to interviews with a dozen defense and industry representatives.

“The Army view was that it did make sense to complete the third production year,� said James P. Maloney, a three-star general who recently retired. “Most of the money for the third production year had been sunk. The return on investment to finish the production was very high. That was the Army recommendation.�

Moreover, Maloney said, a fleet of 263 Sgt. Yorks was viewed by the Army as an effective military force, well worth the training, spare parts and support costs that would inevitably ensue. The Army originally planned to buy 618 guns.

Ammunition Contract

The Army had already funded a contract with Ford Aerospace to produce 550,000 rounds of ammunition, almost enough to serve 263 guns over their entire lives in peacetime use.

Despite such arguments, Weinberger called a press conference on Aug. 27, 1985, to announce that he had decided to terminate the Sgt. York program.

The decision caught senior Army leaders and Ford Aerospace executives by surprise. The Army program manager for Sgt. York, Col. William Chen, was on vacation. Maloney said he also had no prior knowledge of the decision.

Timing Problems

The surprise public announcement created immediate problems for the Pentagon because it was made before Sgt. York contractors could be legally notified that their contracts were canceled. It thus opened a “window� in which subcontractors could increase the size of the eventual termination claims by legitimately speeding up production before they were officially notified. No specific cases of abuse have been disclosed, but the method Weinberger chose to announce the termination opened a loophole that defense regulations were designed to prevent.

In fact, it was not until the evening of Aug. 30 that Ford received a wire from the Pentagon notifying it to stop work. Some subcontractors did not receive their telegrams until several weeks later.

The ultimate cost of canceling Sgt. York is not expected to be known for years. Accounting experts from the Defense Contract Auditing Agency are now going over financial records to determine exactly how much was spent before cancellation. What’s more, no estimate currently exists of the amount of potential claims by subcontractors, according to Robert DePew, the Pentagon’s termination contracting officer on Sgt. York.

Weinberger said at his press conference that the ultimate cost of Sgt. York would be $1.8 billion, although it is unclear who made that estimate. DePew said he does not know how the figure was arrived at and is not able to make his own estimate. That’s because the hundreds of millions of dollars in expected claims are still being tallied.

In the meantime, many small and medium-size contractors are upset. Under defense regulations, they must carry the costs of Sgt. York inventories themselves, and their interest expenses are not reimburseable.

Delays in resolving claims and obtaining even partial payments have created complaints at the majority of subcontractors contacted by The Times.

“You keep redoing the forms and redoing the forms, and they say they still aren’t right,� said Albert Zukas, president of Thiem Industries of Torrance. “It is ridiculous. It is almost by design that these (Pentagon) people don’t want to lose their jobs, and so they just keep the termination going on as long as possible.�

“We submitted one form and they said, ‘No, you need three of these other forms.’ So, we did that, and they said, ‘You need to do this other form.’ We finally decided the paper work was going to kill us. So we threw most of our claims aside,� said John Giovanazzi, an executive at United Supply Co. of Los Angeles, a hydraulic system subcontractor for Sgt. York.

“I had a lot of problems,� said Juan Gonzalez Jr., president of Specialty Engineering of Stanton. “They sent some people out here and then they lost the paper work. It took endless phone calls. First, they told us to do our forms one way. Then, they said we were wrong and to do them another way.�

Issued Threat

It wasn’t until Gonzalez threatened to stop producing critical parts for another weapon system that his claim was paid, he said. “They issued the check the next day,� Gonzales said.

Transmagnetics Inc., a New York-based electronics contractor, had fully completed production of $60,000 worth of test equipment for Sgt. York and was preparing to ship the goods the day before the program was canceled. The little firm has had to ask banks to help it carry the cost of the inventory. “We haven’t been able to settle any claims,� Transmagnetics President Fred Haber said.

One of the angriest complaints came from Orange-based Imac, which recently sent a letter directly to President Reagan. The small firm said it had experienced a great financial burden because of the Pentagon’s non-payment of claims.

The firm is still waiting for a settlement of its $250,000 original purchase order, Imac President Romayne Malloy said in an interview.

“I have some gears here that would make very nice candle holders,� he added.