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Department of Defense and Congress should Cancel Funds for Unwanted Missile Defense program

March 9, 2011

Dear Secretary Gates:

On behalf of the 362,000 members of the National Taxpayers Union (NTU), I urge you to work with our partners in Italy and Germany as well as Members of Congress toward an immediate, fiscally satisfactory termination of the Medium Extended Air Defense System (MEADS) program. Since Comptroller Hale’s announcement last month that the United States would not proceed with deploying MEADS, the case for ending all funding now, instead of in 2013, has only grown stronger.

As you know, MEADS has been a fiscally troubled program from its infancy through its adolescence – a prolonged adolescence that has put the project ten years behind schedule and has cost taxpayers some $1.5 billion. For this reason, we welcomed the Department of Defense’s (DoD’s) decision to exit MEADS before the production process commenced. Nonetheless, we remain troubled that DoD will proceed with an $804 million “proof of concept” effort over the next two years. Initially, Comptroller Hale justified this action by noting that it would allow Germany and Italy, which are collaborating with the United States on MEADS, to salvage sufficient development of the system which might enable its deployment should they desire to do so. In addition, during Congressional hearings last week, Army Secretary McHugh contended that the termination fees associated with the underlying MEADS contract would be prohibitive if the United States were to attempt a complete cutoff of program funds in 2011 rather than in 2013.

We believe that both these justifications should be revisited. In the very same proceedings before Congress, Secretary McHugh said “we’re not convinced [the $800 million proof of concept] is viable,” an opinion that seems to be somewhat at odds with the Department’s February 14 statement that:

[T]erminating the program now, just after successful completion of the MEADS Critical Design Review, would force the nations to devote significant funding to contractor termination costs instead of using this funding to bring MEADS development to a viable level of maturity [emphasis added].

Whatever controversy there may be over the maturity or viability of MEADS, it is clear that U.S. taxpayers will gain little from a further government expenditure of $804 million. Equally important, however, is the growing likelihood that neither Germany nor Italy will be pursuing MEADS on their own. Less than a week after the Department’s public acknowledgement that the U.S. would not field MEADS, German defense officials declared that “it is not foreseen that there will be any procurement of the system.” They also indicated that Italy might soon be abandoning the project in favor of entering discussions with Germany about another system. Meanwhile, the Administration has already begun first-phase positioning of a ship-based missile defense shield in the Mediterranean. It is therefore increasingly doubtful that the “proof of concept” phase of MEADS will have much value for any future applications. Next page, please …

Additionally, there appears to be mounting concern from more than a few lawmakers – among them Members of the House Armed Services Committee – over the decision to incur another $804 million in taxpayer liabilities for MEADS. And just last week, during questioning of Army Chief of Staff Nominee Martin Dempsey, Senator McCain expressed reservations about the MEADS strategy, noting that, “I still don’t quite understand why we would negotiate a contract that if the contractor fails to meet its goals and we have to cancel the contract, we have to pay off the contractor.” We believe comments like these suggest that there would be considerable support for at least attempting to conclude a pact that would cut taxpayers’ losses sooner.

We can certainly understand why Defense Department officials have cited termination penalties of up to $1 billion as cause to continue spending tax dollars on MEADS. We would note, however, that the tripartite cost-sharing arrangement – the U.S. at 58 percent, Germany at 25 percent, and Italy at 17 percent –opens the possibility that the U.S. would not bear this burden alone. Furthermore, expert opinions vary a great deal on the actual amount of termination penalty that could result from determined negotiations with the MEADS contractor. Some have estimated that the final cost could be $500 million or less, split among partners in the project. Based on the legislative climate, the pulse of our allies, and the urgency of regaining control over federal deficit spending, we believe that conditions are ripe to reconsider the current funding arrangement and reach a more equitable accord. As a result, the federal government will also be in a better position to afford critical upgrades to other systems, in air defense and in other areas.

Throughout your tenure as Secretary of Defense, NTU has admired your courageous approach toward establishing fiscal discipline and prioritization among military programs. From C-17 aircraft procurement to the F-35 alternate engine program, you have consistently recognized that taxpayer security is a critical component of national security. We hope that you will now exercise this same exemplary leadership with the MEADS program, by engaging our allies and cooperating with interested lawmakers toward a termination agreement that provides taxpayers with a better choice than $804 million in higher outlays or $1 billion in penalties. NTU’s members are confident that such a solution exists, and we stand ready to assist you in reaching this goal.


Pete Sepp

Executive Vice President