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Defender of the Capitalist System: Department of Defense Worst in Competitive Contracts

The first production A-10A was delivered to Davis-Monthan Air Force Base, Arizona, in October 1975 and it launched 90 percent of the AGM-65 Maverick missiles. (Photo: awee_19 / flickr)

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The Department of Defense (DoD) came in the lowest in the government on competing their procurement contracts. According to the Center for Public Integrity:

While the Pentagon says its level of competition has remained steady over the past 10 years, data available through the Federal Procurement Data System-Next Generation, which provides competition data on federal agencies, show that the dollars flowing into single-bid contracts have almost tripled since the terrorist attacks of 9/11. Nor has that trend been reversed since the 2009 Obama administration memo on competition;Defense Department dollars flowing into noncompetitive procurements continue to grow.

Over the past 10 years, the Pentagon has competed only about 60 percent of its total contract dollars, which stands in stark contrast to other large federal agencies. The State Department, for example, competed 75 percent of its contract dollars in fiscal year 2010, while the Energy Department competed almost 94 percent of its contract dollars. The U.S. Agency for International Development, which faced heavy criticism in the early days of the Afghanistan conflict for handing out sole-source contracts, competed almost 80 percent of its total contract dollars in fiscal year 2010. Even the Department of Homeland Security, which was blasted for a series of disastrous contracts in the wake of Hurricane Katrina, outstripped the Pentagon on competed contracts: it competed almost 77 percent of its contract dollars in 2010.

There are several reasons that these numbers may be low. If the DoD competes an original contract, the winning contractor usually gets all the follow-on contracts, often with no new competition, and those service contracts or weapons procurement are then seen as being a competitive contract for years after the initial competition.

Take the infamous Halliburton/KBR LOGCAP contact for the Iraq war. (Halliburton sold off KBR and is no longer involved in the contract.) Many reporters and members of Congress erroneously said it was a sole-source contract for Dick Cheney's former company. But the LOGCAP contract was competed when it was just used for maintaining some bases and work in Kosovo. The contract ran around $60 million a year, a small amount in Pentagon terms.

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Gen. Paul Kern, the Army chief of logistics for the Iraq war, didn't have enough troops for logistics because then-Secretary of Defense Donald Rumsfeld put a cap on the amount of troops to be used in the initial invasion. Kern pulled out the small KBR LOGCAP contract and exploded it to cover the logistics for thousands of troops in the war effort. The follow-on contract was eventually competed late in the war and KBR lost part of it, but not until the original “competitive” contact swelled to over $40 billion dollars for KBR.

Another way that these competition numbers get padded is because in the DoD, unlike the past, once a company makes a weapon, it almost always gets the follow-on contract. Some of these weapons, like the Maverick missile, go through generations of technical changes and use of totally difference technology, but because it was originally competed up to decades earlier, these follow-on contracts can be considered “competitive.” To see more on the Maverick missile's long history of reinventing itself, see my previous column. I found that during this “competitive contract,” in 35 years, the DoD has bought over 69,000 various units of this missile, with only around 6,000 having been used in actual combat. If there had been a true competition with several contractors recompeting for the largest lot, this weapon would have cost a lot less and probably would have been more effective in war.

But even with this padding, the DoD has ways to exempt contracts from competition for various legitimate purposes. However, these purposes are also abused to make sure that pet contractors don't have to compete. It is almost always easier for a DoD program manager to not have a competition with messy high stakes and large companies pressuring inside the DoD and through members of Congress, who are desperate for the jobs in their state or district. See this Government Accountability Office (GAO) chart from one of their most recent reports:

Percentage of Total DoD Obligations Based on Other Than Full and Open Competition, by FAR Exceptions to Competition, Fiscal Years 2007 Through 2010

As you can see from the chart, the majority of exemptions, almost half a trillion dollars in three years, was not in a full competition because there was “only one responsible source.” The DoD and the industry will complain that the defense base is shrinking and there are few companies left that can do these unique defense contracts. Yet, in the 1980s and 1990s, the main DoD companies, with the Pentagon's blessing, began to gobble each other up so that there were a smaller and smaller numbers of contractors to compete.

The “only one responsible source” exemption can be greatly abused to mean a favored contractor that has a big lobby budget and can get the weapons program through Capitol Hill even though it is overpriced and underperforming. The “only one responsible source” could also dangle a high-paying contractor job to the government workers overseeing the contract. The resulting revolving door spin usually only smacks the soldier and the taxpayer in the back, while encouraging our contract overseers to think about self-dealing and not what is best for the country.

The Sunlight Foundation has found that lobbying costs continue to increase as threats to cut the increase in defense are hanging out there. Many of these “only one responsible source(s)” will make sure that the Congress is flush with contributions to protect their contacts.

For many decades, the DoD has been telling the Congress, the media and the public that it wants to increase the amount of competition in its contracting and save money. Yet, true and open competition is an endangered species in the Pentagon as influence peddling and cronyism grows, using “legitimate” exemptions. There have been decades of promises and initiatives by the DoD to fix the problem, but it grows in seriousness year to year.

In this yearly appropriations Kabuki dance, the Congress tells the DoD to try to increase competition so that they appear tough on the DoD, and the DoD promises to do better. None of this has led to real change in the competition of contracting and all its loopholes.

The solution? This is not a problem that can be fixed overnight, especially since many of the working bureaucracy in the DoD like to be safe and work with one contractor to sell and protect their program. Sometimes, you have to go back to the past to find a solution. In 1983, Sen. Chuck Grassley introduced the first of a series of bills to reform the DoD. When he saw that only 6 percent (a truer number than today's padded estimates) had true, sealed bids open competition, he decided to take action. His first bill required an increase of 5 percent per year in the Pentagon's competitive procurement until true competition reached 70 percent of the total contract dollars spent. He called it “creeping capitalism,” a way for the DoD to get away from its cronyism habits of using the same contractors.

This reform was swept away with many of the other Pentagon reforms in the 1990s. I would reintroduce it, but the DoD would either ignore it and take the heat in a hearing knowing that they could just promise to do better, or further fudge the numbers to make it look like they were making progress.

The DoD does understand money and the withholding of money and that can often wake up the Pentagon by using a carrot-and-stick approach. I would reintroduce the creeping capitalism bill with a distinct definition of full and open competition to eliminate the padding of the number of competing contracts. I would also require the DoD to raise their true competition amounts 5 percent a year if not more than 70 percent was open competition. But also to “appeal to the patriotism” of the DoD contractor managers, if that goal was not met, the DoD would lose 5 percent of their contracting money until the yearly goal was met.

Of course, if this legislation were ever to pass, the Congress would have to be ever vigilant about the longtime tricks of calling contacts, that have not been competitive for years, in the competition column. I am not sure that the Congress has the persistence, the guts and motivation to increase competition in the DoD, but if they are truly serious about saving money while providing for a better defense, they need to be willing to force capitalism in the DoD thinking. The Pentagon, while claiming to protect our free-market system, has gotten far away from that system in their own buying habits.

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