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27 May 1999. Tt Dan Dupont.

Inside the Pentagon - May 27, 1999

Reprinted with permission

Program suffering from cost overruns, delays


By Michael C. Sirak

Amid schedule delays and disagreements with the Army and the government of Israel over cost-overrun liabilities, TRW has decided to abandon a high-profile effort to develop a laser system to protect Israel from short-range artillery threats, Defense Department officials tell Inside the Pentagon.

"Despite a signed contract and written commitment to both the government of Israel and the DOD, TRW has advised the Army it will abandon its contract on June 1, 1999," a well-placed DOD official told ITP.

The DOD officials say they are shocked at TRW's position. One official stated, "It is clear TRW does not understand what the word commitment means. . . . What is inconceivable is that TRW does not seem to understand the repercussions from just walking away from a major DOD program."

The Army, these officials say, is preparing to terminate TRW's contract for default if it repudiates its financial obligations. One official said DOD will probably ask not only to recoup current contract payments, but may also seek damages for alleged breach of contract.

The program, known as the Tactical High Energy Laser (THEL), was begun by the United States in 1996 to provide Israel a defensive capability against Katyusha rockets and other short-range artillery threats it faces on its northern border. The system is seen as an important incentive for Israel to move forward with the Mideast peace process.

A spokesman for TRW's Space & Electronics Group disputed DOD's claim that a decision to leave the project had been made, and declined to respond to a series of detailed questions from ITP. TRW's Brooks McKinney said negotiations are still ongoing between the parties and that his company intends to conduct the negotiations "at the table and not in the press."

McKinney did say, however, that any assertions TRW has not managed the program properly are "substantially [and] factually inaccurate."

The Army's Space and Missile Defense Command, which is in charge of THEL development, would also not confirm that TRW has pulled out of the THEL program. "We can't verify that," an SMDC spokesman said. "TRW is working today on the THEL contract. We expect the program to be completed in a timely manner."

Israeli officials could not be reached for comment at press time.

According to the DOD officials who spoke with ITP, negotiations over how to finish the THEL program in the face of cost overruns and schedule delays faltered over the issue of who would be responsible for costs to finish the program above and beyond the ceilings established in the contract.

The Army wanted TRW to shoulder the additional costs. TRW, service sources say, expected the Army and Israel to assume the major financial obligations.

The company, the DOD officials say, has invested about $20 million to $25 million in the program to date. The Army and the Israelis have spent about $132 million; the bulk of that amount has been picked up by the United States. Approximately $50 million is estimated as needed to finish the job, the officials say.

TRW's THEL contract is not a fixed-price arrangement, according to SMDC. The contract contains a small number of "contract line items" (CLINs), all of which are "cost-type" arrangements. The principal CLIN in the THEL contract, says SMDC, sets a ceiling of $130.8 million and "obligates TRW to pay 100 percent of any costs incurred in excess of $130.8 million in completing the required work," an SMDC spokesman told ITP.

More specifically, the contract states "the government shall not be liable for any costs . . . which exceed $130,800,000," and that "costs in excess thereof shall be shared zero government and 100 percent contractor and are unallowable notwithstanding that they were incurred in the course of the contractor's obligation to fulfill the requirements of the contract."

A senior Army official noted President Clinton publicly endorsed the program and the Army later awarded it to TRW. "Now they are just walking away, embarrassing the U.S. government and making us look like an unreliable ally," the senior Army official said. "The situation is just intolerable."

TRW's Space and Technology Division in Redondo Beach, CA, has been developing the laser system. THEL consists primarily of four components: a fire control radar; a command and control element; a pointer tracker -- the device that directs and aims the laser beam; and the laser itself.

The THEL radar was developed by Israel. The THEL laser is a deuterium fluoride, combustion-driven chemical laser.

The original contract was signed between the Army and TRW on July 23, 1996. Under the terms of the $89 million "cost-plus-award fee" deal, TRW was to design, build, integrate and functionally test the THEL demonstrator at its facilities over an 18-month period, which was later extended to 21 months. The original contract was modified on Jan. 28, 1998, by a $42.5 million option to include field tests of the demonstrator, including actual live engagements against Katyusha rockets at the Army's High Energy Laser Systems Test Facility at White Sands Missile Range, NM.

Once the system is fully tested and demonstrated, it is scheduled to be delivered to Israel for installation and operation on the Israeli northern border.

The system has been in the final integration and subsystem testing stages, but SMDC has acknowledged THEL has been beset by laser leaks and problems with the system's laser beam director. These difficulties have caused schedule setbacks and cost overruns, which have delayed by about one year the date on which the system can be delivered to Israel.

The THEL pointer tracker is still undergoing final integration at TRW's Redondo Beach test facility and, according to the most recent estimates provided by SMDC, was scheduled to be delivered to HELSTF this summer.

Program officials expected to finish subsystem integration and testing on the system's laser this spring at TRW's Capistrano, CA, facility and ship it to HELSTF thereafter.

Live-fire testing, according to the same estimate, would be complete by the end of February 2000, after which the demonstrator would be shipped to Israel.

"The Army will find a way to finish the job without TRW and make effective use of the company's funds to do it," a DOD official said. "The Israelis will stand with DOD and the Army on this."

What legal recourse the Army and the government of Israel might have is limited if the contract is successfully terminated for default, according to a legal expert with long-term experience in government procurement issues.

"The potential liability to the contractor in the termination of such a contract is not very great," the legal expert stated.

In substance, he said, cost-plus type contracts are usually "no-risk" contracts.

Meanwhile the United States is still in the process of deciding whether to pursue its own THEL system. The Army is studying various concepts, including a mobile THEL and a THEL derivative for the Korean peninsula (Inside the Pentagon, April 29, p1).

Because the Army has no formal requirement for a THEL-type system, no money for the program was included in the president's fiscal year 2000 budget request. Earlier this month, however, the Senate Armed Services Committee awarded the program $10 million in its mark-up of the president's defense budget request, while the Senate Appropriations Committee gave it $15 million.

As of press time, it is not known what action on THEL House authorizers and appropriators have taken in their respective mark-ups.

© Inside Washington Publishers