Weapon Systems Warranties: Unleashing the Gemus in American Industry?

• Pages: 02

by Major William R. MedsgerI. INTRODUCTION

The Department of Defense Authorization Act of 1885' requires the Department of Defense to mclude wananties m all major weapon systems contracts after January 1, 1986.ZThe pnme cantractor must warrant that the weapon system is free from all workmanship and material defects, that It conforms to the desigm and manufactunng specifications stated in the contract, and that it meets the essential performance requirements established for the weapon System If any of these warranties are breached, the contractor is held finan-cially responsible.'

This article will first examine the evolution of this statutow warranty requirement. Second, n will discuss the specific requirements that the statute and the implementing regdatiolls impose Third, the article will examine the intricacies of drafting warranty clauses and will offer practical suggestions far negotiating the terms of these clauses Finally, this article will provide some observations on the effectiveness of weapon system warranties. This article focuses prmanly on the Department of the Army's implementation of the warranty requirements.

'Judge Advocate General 1 Corps Cumntl? assigned BI a Contract Law Atfome~.

U S Arm) Mide Command. Redstone Amend Alabama Formerly aulmed a!

Cam-

mand Judge Mvocate, US hlmv meld Station Simp, Turkey, 1881-1886 md Deferu? 1982 I885 Platoon Leader 11th Slgnd Group Fort Huachuca Aniona 1876-1878 B.S , Lruted States Mllitan Academy. 1976, ID , Amna Stare Uluirrury, 1982, L L M

(Honor Graduate). The Judge Adroesfe General'r School, 188i Author of Category at LO Member of the ban of the E S Supreme Court. the S Coun of Militsrs Appeals. the I2 S .Amy Coun of MIIIIBT Revier and the State of Aniona

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IPub L No 98-625, 98 Stat 2192 (1081)

"Pub L So 98.525 5 1234 98 Stat 2392, 2601-03 (1984) (codified at 10 L SC 5

2403 (Sum V 198ill The statute uses rhe term iu~ranfee This mlele refen to guarantees a!warranties because this IS the more common legal termmalog)p10 U S C # 2403(b)(l) (3) (Supp V 1887)'id 5 2403(bX4)

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MILIT.4RY LAFY REiIEA [ \ O i 12i

11. EVOLUTION OF THE WARRANTY REQUIREMENT

1. DOD APPROPRIATIONS ACT OF 1984

   The forerunner of the present aarranty requirement was included m the Department of Defense Appropriations Act of 1984 That Act proscribed the expenditure af federal funds far the procurementof any weapon system after December 3. 1983 unless rhe contractor provided written warranties cotenng the weapon s)stem BThe prohibition was not limited solely to the expenditure of funds a p ~ propriared by the 1984 Act. It applied also to funds appropriated b) any past or future congressional legxlation.'

   The Act required two distinct warranties. First the contractor had to warrant that the weapon system and Its components were designed and manufactured to canform to the government's performance requirements. Second, the contractor had to warrant that the system and its components were free from defects in materials and workmanship that could cause the srstem to fail to conform to those performance requirements In the event of a breach of either warranty, the contractor was to promptly correct the deficiencg at no cost to the government *If the contractor failed to promptly repar or to replace the defective parts, the government could obtain the repsirs from another source and recover those costs from the contractor>@

   This pro~ismn was enacted in response to Congress s contmuing awareness that miyor aeapon systems u w e conscantly fahng despite the enormous cost necessary to design and produce the weapons The initiator of the prov~smn, Senator Mark Indrews. stated that the purposes of the warranrg pronsmn here "to unleash the genius m .4mencan industry and to make sure that sloppy and faulty designs

   ,Pub L No 58 212 97 Stat 1121 (1983) The Department of Defense Appmpna

   Uonr Act of 1583 8- the fint attempt by Congreia to requrre uarranliei That Act reqmrer that all future purchiues of the drernate or ne- model fighrer arcraft engne include warranties that the aliciafr engnei w ~ l l perform at not lees than 3 000 r a ~ riealcyelerPub L No 97-377 g797.06Scat 1830. 1865(1982l(repnnredat IOL'SCA

   2301 note (Uesl Supp 1989))

   Tub L No 58-312. 5 784. 57 Stat 1421. 1461 65 (1983). repprated by Department 'Pub L No 88 212. 5 784(a) (d). 97 Stat 1421 1434 53 (19831#Id 9 794(aK1) (2) 9: Stat sf 1

   5 784(a)(3)(). 8'old 3 794((a)O)(B) 8

   af Defense Appropriations Act of 1985 5 1334(bXl) 58 Stat 2452 2601 (15611

   1990) WEAPON SYSTEMS WARRANTIES

   do not go into production at high costs to the taxpayer and, even worse, jeopardize the lives of our fighting men who rely on these weapons systems"" Senator Andrews likened these warranties to those provided routmely m the commercial sector, and he believed that warranties would have the same beneficial effect on weapon systems as they have had on the quality of goods in the commercial sector?l Senator Andrews beheved that putting responslbihty through the use of warranties squarely on American manufacturers would be the best wa? to stop slipshod quality in United States weaponry13

2. DOD's OPPOSITION To THE WARRANTY REQUIREMENT

   While Conmess was debating the warranty legiilatmn, the Department of Defense (DOD) adamantly expressed its avenmn to a blanket warranty requirement. DOD was not opposed to the use of warran- lions stated The Committee IS concerned that for too long Conmess has been preoccupied wlth appropriating funds to correct defective and shoddy workmanship m weapons wifemi Tax dollars should no longer be expended for the pu~pose of producing milltar) waponr that are operatlonalli unrelmble do not meet the military mlmm tmk and threat, and ma) ~mpenl the lives of our troop8 onfhe fronflrnesof ourharmnsdefense lfi~the

   Committee's belief that Con-gnss muL demand that those xeaponi necehary for a strong defense workBI intended

   In order to produce !veaponi which are reliable and which w11 enable the pmte~tmnof vital K S secunf) mteresfl, the Committee recommends a general pmvlsmn m the bill reamnni the Denartmenr of Defense to obtain rritten guaranteeiin praducnoncontrract3or in) othera@.eementsrelatlngfo theproductron of weapons systemsS Rep \o 292 98th Cong, 1st Sess 12 13 (19831

   Senator Andrew& concern wag *ell founded In 1983 inoperable weapon systemson Ilavy ships caused the L S Nar) fa delay Its deployment Lo kbanon During the Iran rescue attempt of 1980 the mlmm had to be aboned because of helicopter mslfunCTioni The Army's ner Bradley Fighting >%hick lnrflzlly expenenced performance and SUn~iuabiliti problems The M-l lank has ahexperienced porerplanl. tranimiidmn, and aeeurae) pmblemr The Sergeanf~~orkdirisionairdefenseneapon antem (DI\XD) had experreneed mqor performance deficiencies and wag I" IIJwan

   1ng dav when Senator Andrew exDpressed his ~oncerns See tnlm note 46

   yropnahons.for FY 1984 &love the Sukmm on :he Deporamnt ofWense @ t b Senate C a m on Appmmaltom, 98th Con8 , 1st Sear, pt 4. at 443 53 (1983)[hereinafter Senate Heoiingr 19841 (Te~lynon? of Jerry Smith. Aislstfant Vice Pres1 dent LS.4IR). id a7 488-99 (statement of Torn hlafteron, ~onsultanf representing the alrllne mdusfryl. Senafar Andrewn'n reliance Seems mmplaced because the nrkswoelared With commercial jets are mlnimsl while thor of military aircraft are meat Most eommeieial~ets have been well teared. mdltaw aacraft. houever, BE om the CYfIIng edge of technolorn

   'JSniote Heatings 1984,

   sum note 12, at 413

   ties on a selecti%-e basis, hut only to the blanket applicatmn of warranties to all weapon systems contracts." The Deput) Under Secre~ tary of Defense for .4cquisition Management, Mary Ann Gilleece. stated that DOD's experience had shown that warranties should he used only on a case-by-case hasis and, further, that they should reflect a halance of risk between government and contractor and the attendant cost considerations to both

   Under Secretary Gilleece stated that warranties were only ap propmate in the followmg circurnstance~ Fmt, the technology of the weapon must be sufficiently mature so that the risks of the warranty can be Identified. In this light, It must be remembered that although a warranty may shlft the risks to the Contractor, at the same time the costs associated with the risks will be shifted to the goiernment. Second, warranties are appropriate only in fixed-pnce contracts Third, \rarranties are appropriate only m a competitive environment Fourth. warranties should normally corer only selected components and not the entire weapon system. Fmally. the govern^ ment must he able to admmater the warranty m a reasonable and inexpensive fashion Ir

   W D and the defense mdustry." have expressed numerous concerns

   'I29 Cong Rec 815668 svprnnofe li 8DOD statement anaarranrwrmade b) \lap inn ri,,,r.rri

   . . .

   prmrfo i984 8 1979 DO0 sunei reiealed that one-Third of the item5 purchased b) DOD cantamed some r)pe of uariant~ For B useful. bur outdated diicurrion of the

   menr of Electronics Industriel .4iioelanonI

   The College of Bunnesr. Arizona State L'nivens\. Conducted four forums during 1984 86 fodiicu~

   Lheappllcatlonof weaponrislemswanantles RPpremti)lliPsfmm both the defense Industry and DOD partlclpaled See G Rlder Warrant) Forum (SPP 13 14. 1884) I Summar? Repon (SIP[ 29 19641 !unpublmhed). G Rider IVarranti Forum I1 (Jan 17 18 1985) Report (Feb 26 19861 (unpublished1 G Rider Sarranri Forum 111 (Ocr 10-11 1085) Repon Iunpublnhed)66

   19901 WEAPON SYSTEMS WARRANTIES

   over the blanket warranty requkement?B One concern was that the weapon system's price would mclude the costs of the warranty, either directly or mdlrectly, increasing procurement Costs to an unaccept. able level.Le Although DOD has made thm assertion, It has never presented any cogent evidence demonstrating that the increased costs of warrantie3 are greater...