The Central Intelligence Agency and Overhead Reconnaissance; The U-2 and OXCART Programs, 1954-1974

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44
Sasret NOFORN
Chapter 2
use. Public Law 110, approved by the 81st Congress on 20 June 1949,
designates the Director of Central Intelligence as the only government
employee who can obligate Federal money without the use of vouch­
ers. By using unvouchered funds, it is possible to eliminate competi­
tive bidding and thereby limit the number of parties who know about
a given project. The use of unvouchered funds also speeds up the
Federal procurement cycle. A general contractor such as Lockheed
can purchase much, if not all, of the supplies needed for a project
without resorting at each step to the mandated procurement proce­
dures involving public, competitive bidding. Covert contracting also
permits the use of second and third parties, many of them dummy
corporations or unwitting suppliers, thus hiding the intended destina­
tion or use of the various purchases.
In mid-December 1954, President Eisenhower authorized DCI
Dulles to use $35 million from the Agency's Contingency Reserve Fund
to finance the U-2 project. Then on 22 December 1954, the Agency
signed a letter contract with Lockheed, using the codename Project
OARFISH. The Agency had proposed to give Lockheed "performance
specifications., rather than the standard Air Force "technical specifica­
tions," which were more rigid and demanding, and Kelly Johnson agreed
that such a move would save a lot of money. Lockheed's original pro­
posal to the Air Force in May l 954 had been $28 million for 20 U-2s
equipped with GE 173 engines. During negotiations with CIA General
Counsel Lawrence R. Houston, Lockheed changed its proposal to $26
million for 20 airframes plus a two-seat trainer model and spares; the Air
Force was to furnish the engines. Houston insisted that the Agency could
only budget $22.5 million for the airframes because it needed the balance
of the available $35 million for cameras and life-support gear. The two
sides finally agreed on a fixed-price contract with a provision for a re­
view three-fourths of the way through to determine if the costs were
going to exceed the $22.5 million figure. The formal contract, No.
SP-1913, was signed on 2 March 1955 and called for the delivery of the
first U-2 in July 1955 and the last in November 1956. Meanwhile, to
keep work moving at Lockheed, Richard Bissell wrote a check for
$1,256,000 I
~nd mailed it to Kelly Johnson's
home on 21 February 1955.9
• John S. Warner. Oftice of the General Counsel, interview by Donald E. Welzenbach,
Washington, DC, tape recording, 5 Aug 1983 (S): OSA History, chap. 5, pp. 1-2 and annex
42 (TS Codeword): Johnson, "Log for Project X," 21 February 1955 .
.Searet