Lockheed: The Ultimate Pay-to-Play Contractor

Part of the Series

Solutions

Loren Thompson is one of those people in Washington, DC, circles that wears several hats. He is the chief operating officer for the nonprofit Lexington Institute, a think tank that promotes defense contractors and large Pentagon budgets, and is also chief executive officer of Source Associates, a for-profit consultancy that advises defense contractors. He also writes opinion pieces for AOL Defense that are also posted on the Lexington Institute web site. Although the Lexington Institute does not disclose its donors on their web site, Thompson does disclose that the Institute receives funding from Pentagon defense contractors. (The founder of the Lexington Institute, James Courter, was a lobbyist for Lockheed in 2000.)

He is an unabashed promoter of Pentagon contractors and wrote a disturbing article this week for AOL Defense talking about how Lockheed has not only survived the most recent defense cuts, but actually has set itself up to be the most successful defense contractor despite the cuts. He hints at what most of us already suspect – that Lockheed has a lock hold on a large portion of the Department of Defense (DoD) budget and has set itself up to have undue influence over government decisions.

However, in classic Washington-speak rationalizations, he insists that it is because Lockheed is a better-run company than most and dismisses that it is because they are, and have been for a long time, one of the most successful pay-to-play operators on Capitol Hill and in the Pentagon. From his recent article:

If you are one of those people who believes the various conspiracy theories making the rounds about Lockheed Martin’s excessive influence over government decisions, the Pentagon’s fiscal 2013 budget request probably won’t make you feel any better.

Having served as an advisor to Lockheed and many of its competitors for a long time, I don’t take the conspiracy-mongering very seriously because I frequently see up close how frustrated company executives get with their military customer. However, I have to admit I was surprised at how well the nation’s biggest military supplier made out in the Obama Administration’s reordering of Pentagon priorities….

Lockheed Martin is poised to be by far the biggest beneficiary of the new military spending priorities articulated by the Obama Administration. It has lost little in the trade-offs leading up to the budget release and it is actually gaining ground from the setbacks dealt its rivals. Termination of Northrop Grumman’s Global Hawk Block 30 unmanned aircraft will result in the Air Force relying on Lockheed Martin’s U-2 spy plane for decades to come….

Besides being better at execution than many of its competitors, Lockheed Martin has also done a very good job of positioning itself in the military marketplace. Company executives didn’t over commit their business mix to short-lived opportunities like military transformation and stability operations, preferring instead to concentrate in areas where Lockheed traditionally excelled such as military space and naval electronics. Thus, Lockheed Martin is less exposed as the military customer begins shifting back to the investment priorities that prevailed before 9-11. It has also been aggressive in cutting costs since the first signs of softness in military demand began to appear.

So even though Lockheed’s revenues are not expected to grow much in the years ahead unless it diversifies or buys other defense companies, its profit margins have strengthened across all major business units. Some observers will interpret this trend as further evidence that Lockheed Martin has a special relationship with its government customer. Investors are likely to conclude it is just better run than its competitors.

It is ironic that he claims that Lockheed has been aggressive in cutting costs with the so-called soft defense budget. They may have been cutting their costs internally without the government’s knowledge, but they certainly are sticking it to the Pentagon with massive cost overruns for their new plane, the F-35. They know that they have the DoD over a barrel despite the overruns because they will soon be the only company that builds the Pentagon fighter planes.

The Government Accountability Office (GAO) has just released a report about that the overruns in the newly configured F-35 and, according to Reuters, the “first four procurement contracts were more than $1 billion over budget combined, with the government to cover about $672 billion of the cost and Lockheed to cover the rest. The government also faced $373 million in retrofit costs to fix deficiencies discovered in testing on planes already produced.”

This will cause the Pentagon to get fewer planes for more money – the classic “more bucks, less bang” problem that has plagued defense spending for years. The Air Force secretary claims that they will get tough with Lockheed in the future. Secretary Michael Donley, “told the Senate Armed Services Committee that the F-35 program office and Lockheed had been told there was ‘no more money to put against contract overruns or problems.'” This will be a hard promise to keep because the Lockheed influence machine will soon crank into gear to get more and more money as the problems of the F-35 continue to plague this fighter – you can bet that the government will pay for most of the mistakes of this on-going fighter plane disaster.

However, Mr. Thompson tries to make us believe that this powerful Lockheed pay-to-play machine is just airy conspiracy theories. As they say in sports broadcasting, let’s go to the stats. According to Sunlight Foundation databases, since 1989, Lockheed has:

• Given $23,097,580 in campaign financing.
• Spent $125,580,880 on lobbying and hiring some of the biggest Republican and Democratic lobby firms in Washington.
• Received $20,180,000 in earmarks.
• Received 31 grants and 15,358 contracts from the federal government.
• Had 257 of their people on 135 government advisory committees.

And, despite Mr. Thompson’s glowing view of the management of Lockheed, according to the Project on Government Oversight’s Contractor Misconduct Database , Lockheed has had 66 instances of contractor misconduct, making them No. 1 on the list of errant federal contractors. And they have had 12 Environmental Protection Agency enforcement actions.

Mr. Thompson may claim to see the great management of Lockheed on the inside. but I have done hand-to-hand combat with Lockheed and their abuse and fraud over the years. I revealed an Air Force memo on one of their plane’s estimated overruns that forced them to suspend their stock trading for a day, exposed an illegal and extremely collusive plan to lobby the Congress with the Air Force and the DoD to sell another run of the notorious C-5 cargo plane (see this Solutions column, uncovered their selling of a $7,622 coffee brewer and other outrageous spare parts to the Pentagon, been threatened by Lockheed attorneys to put me in jail for refusing to reveal my sources within their company (they lost), gone through 250,000 documents in a whistleblower lawsuit that showed they were mischarging timecards and cheating the government, and have had to deal with this company threatening their employees and DoD personnel who wanted to tell the truth about their management. One of their whistleblowers in the past had to have federal marshals protect him and his family when there were threats to throw acid in his daughter’s face.

So, I know the true character and corporate climate of this company from an up-close-and-personal view to know that their real game is to soak an often willing Pentagon for every dime they can while delivering problem-plagued weapons that they then get to fix with government money. Lockheed is still the best pay-to-play company in the government and continues to lobby in collusion with the Pentagon for their weapon systems such as the F-22 fighter as outlined in William Hartung’s book, “Prophets of War.“

My biggest frustration after years of exposing their frauds and outrages is that they get away with it by just paying the fines to a complacent federal government and continue to just go about business as usual. They can get away with it more than any other DoD company I know because they do invest by making large payments for pay to play with campaign contributions, and snatching the most influential former government employees as they twirl through the revolving door out of government services. They have mastered the art of the Washington fix despite the fact that they have the largest misconduct rate.

Their corporate motto says it all. “We never forget who we’re working for.” That is supposed to make the public think it is the taxpayer and the soldier, but it really is code because the “who” are their executives with high salaries, their stockholders and members of their board. The statistics above and their sordid history of influence peddling with large sums of money make sure that the submissive DoD and other parts of the federal government will continue to walk into their corporate lair. But how can we truly discipline them or suspend them when they now have cornered the government as the sole manufacturer of our fighter fleet? It will be interesting to see if they can keep this advantage if the budget sequestration goes through and more defense spending is to be cut … seriously cutting their budget may be the only way to keep them from shafting the government as they have been doing for decades.

Once again, it appears that the only successful reforms that will work here are to slam the revolving door shut and keep their money out of the hands of a willing Congress.

Despite my frustrations of past exposés, I will continue to expose them whenever Mr. Thompson continues to pretend that their success is due to their great management for the government.