Flying Before Buying

The scandalous cost overruns in defense contracts largely have been due to a Pentagon system called Total Package Procurement, or TPP, which was started by former Defense Secretary Robert McNamara. TPP contractors did not have to build prototypes, and they were allowed to kick up prices if they were hit by inflation or unforeseen technical problems. Result: foxy contractors "bought in" to contracts by deliberately underbidding, then collected huge overruns as costs soared.

After long urging by former Deputy Secretary of Defense David Packard, the Pentagon is now moving to a fixed-price "fly-before-you-buy" system. In the first award in years under this system, Fairchild Industries' Republic Division, -based on Long Island, was picked last week to produce the A-10 combat support plane. Fairchild landed the contract only after it agreed to hold prices to $1.4 million per plane and its prototype won a "fly-off" against a plane made by California's Northrop Corp. If the A-10 continues to please the Air Force after the first 58 planes are delivered by 1975, the order could rise to 720 planes, creating more than $1 billion in revenues for Fairchild and some 4,500 jobs for the depressed aerospace industry of Long Island.

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