Washington Report on Middle East Affairs, March 1998, Page 48

Special Report

U.S. Defense Firm Protests Marine Corps Contract Awarded to Israel's Rafael Armaments Company

By Shawn L. Twing

A Waltham, Massachusetts defense firm has protested the award of a U.S. defense contract worth $7 million to $11 million to Israel's Rafael Armaments Company, saying that both Rafael and the U.S. Army's Tank Automotive and Armaments Command (TACOM) are not following the rules specified in the Army's original contract specifications.

At issue is a contract to outfit 156 U.S. Marine Corps light armored vehicles (LAV-25) with additional armor to protect against attacks from small- and medium-weapons fire. Competing for the contract were two U.S. firms, Foster-Miller of Massachusetts and Stimula of Arizona, and Israel's state-owned Rafael Armaments Company.

The dispute centers around Foster-Miller's allegations that Rafael may have ignored weight requirements for the contract, which specify that the entire armor package can weigh no more than 1,700 lbs. TACOM only tested samples of each competitor's armor and did not verify that an entire armor kit would meet its weight requirements. The individual companies were responsible for ensuring that the overall weight of each armor package would not exceed the contract's limits. According to Foster-Miller, this allowed Rafael to use heavier, less advanced armor that not only costs less, which made Rafael the lowest bidder, but also passed 100 percent of the Army's tests for ballistic strength.

Foster-Miller, a leading U.S. manufacturer of ceramic and ceramic matrix armor, and an armor supplier to the United States, Canada, France, Italy, New Zealand and Portugal, redesigned its armor package with a lighter, more advanced composite armor to meet the requirements of the LAV-25 contract. In so doing, however, Foster-Miller's contract price increased substantially and its ballistic test scores did not match those of Rafael's.

In a letter to Sen. Edward Kennedy Foster-Miller's director of contracts, Richard Covel, explained: "Foster-Miller's concern is that the Army may, if the Rafael [armor] kits are overweight, simply waive the mandatory maximum weight requirement. Under such a waiver condition, Foster-Miller could have won the contract also by ignoring the maximum weight requirements and bid its tested, proven, fielded and less expensive Canadian or French kits. Foster-Miller, however, does not operate in such an insidious manner."

Israeli industries are allowed to bid for U.S. government contracts on an equal footing with American contractors.

With Senator Kennedy's assistance, Foster-Miller brought its case to the U.S. government's General Accounting Office (GAO) and asked that the GAO force the Army to weigh Rafael's armor package and, if it was overweight, to re-open bidding for the contract. On Nov. 14, the GAO dismissed the protest and upheld the contract award to Rafael. In a statement quoted in Inside the Navy, the GAO said that "the protest does not provide a basis to question the award."

Other industry sources dispute that claim. Several U.S. ceramic and ceramic matrix armor manufacturers contacted by the Washington Report explained that the technology for creating these types of armor has been explored in depth by U.S. firms, and that there are some finite technological limitations governing its production. Given these limitations, they say, it is virtually impossible for Rafael to meet the U.S. Army's requirements for weight and strength at the price offered by the Israeli company.

In addition, the U.S. Army's decision to award the contract to Rafael ignores an earlier congressional attempt to stimulate development of an advanced armor industry in the United States. Following the escalation of hostilities that led to Operation Desert Storm, the Pentagon's Defense Advanced Research Projects Agency (DARPA) pushed a U.S. initiative to develop ceramic matrix armors, and used some of its funds to help U.S. companies offset the cost of new, expensive materials used to create them. Awarding Rafael this contract, as well as two previous add-on armor contracts in the past year, seriously undermines U.S. efforts to build and support its own industrial base, U.S. defense sources say.

A Microcosm of Competition

Foster-Miller's dispute with TACOM, the GAO and Rafael is a microcosm of competition for U.S. and international contracts by American and Israeli defense companies. Congress has acted to exempt Israel from congressionally mandated "Buy American" statutes designed to support the U.S. defense industry, which has suffered from staggering downsizing following the end of the Cold War. As a result, Israeli industries are allowed to bid for U.S. government contracts on an equal footing with American contractors.

Israeli defense companies also receive nearly half a billion dollars each year directly from U.S. taxpayers. Unlike all other U.S. foreign aid recipients, which must use U.S. military aid funds to purchase U.S. products, Israel is permitted to use $475 million of its annual $1.8 billion in military aid to procure defense goods and services from its own defense industries. This annual infusion of U.S. federal funding directly into Israel's defense industry not only supplies Israel's military with advanced weaponry, but it also helps companies like Rafael compete for and win U.S. and international defense contracts, often at the expense of U.S. defense firms.

When asked who is culpable in this case, responses from industry sources varied. Although there was some muted criticism of Rafael and its alleged methods for winning the LAV-25 contract, most respondents blamed the U.S. government in general, and TACOM in particular. One U.S. defense executive, who asked to remain anonymous, explained: "Rafael is an extremely strong defense company with a really strong lobby. If it's a choice between angering Rafael or angering [a small U.S. armor manufacturer], that's a no-brainer."