In the first “Solutions: Making Government Work” column, editor Dina Rasor outlines an essential first step toward regaining control over the notoriously corrupt Department of Defense contracting system. It’s not going to be easy, but if the political will can be summoned to take this step, voters may handsomely reward politicians who show bravery on this issue. To attack the problem, Rasor draws on her three decades in the trenches of the battle between the military-industrial complex and those who seek to cut waste and punish fraud. Believe it or not, this fight has not always been one-sided. The Pentagon can be beaten.
This is the debut of a new column for Truthout to look for realistic and achievable solutions to the problems in the federal government. For more on the background and goals for this column, click here.
Every part of Washington, DC, is scrambling to find some way to balance the budget and reduce the deficit. Even in tough times, it is rare for the powers in Washington to consider looking to any part of the Department of Defense (DOD) budget to cut, especially during wartime. But the DoD budget has risen dramatically since 2001, and some in Congress are looking for fraud, waste and abuse in the DoD budget to weed out.
The Pentagon finances are a mess and the DoD has not passed an independent audit in 20 years, one of the few departments in the federal government that has failed to do so. After investigating the DoD for 30 years and living through many attempts to try to get control of the DoD spending, it appears to be a task too big for any Congress or president to conquer. I am launching this new “Solutions” column to find small, achievable and realistic slices of government reform, therefore, fixing the Pentagon finances and costs seems like a strange way to start. However, I have a modest solution that could possibly be the first step to a many-mile journey of finally getting a handle on out-of-control costs.
To understand how weapons and other costs keep overrunning and growing exponentially with each new generation of weapons, you have to first understand how the DoD looks at costs – what they paid for in the past and how they calculate what is reasonable to spend in the future. For much of the past 40 years, the DoD has used historical cost pricing to see what is reasonable to pay for future systems. In other words, the DoD looks at how much it costs to produce planes, ships and tanks and uses that as a baseline to calculate what the new plane, ship and tank will cost, plus more money on top for new technology.
The problem with this system is that the DoD has tolerated so much fraud, waste and fat in each weapons program, with only a few of the contracts scrubbed for inflated costs. This has resulted in generations of fraud and fat, which have become part of the new baseline on historic costs. According to the Government Accountability Office (GAO), right now, major weapons programs are overrunning by $300 billion. What will happen with most of these programs is that the DoD will pay for these weapons with their overruns anyway, and then those overruns will become part of the new baseline for new programs for new weapons. Essentially, this process magnifies the waste and makes it grow exponentially with every new weapons system.
The best way to really understand the problem is to look at the costs of items that the public can understand. The DoD has the advantage of confusing the public and most of the members of Congress because it is hard for the public to decide what a tank or fighter plane should cost. But in the 1980s, I helped expose overpriced spare parts in the DOD. Many people still remember the $436 hammer, the $600 toilet seat and $7,622 coffee brewer. The public was so outraged over the high prices on parts that both chambers of Congress passed an unprecedented one-year defense budget freeze in the mid 1980s, in the middle of the cold war, and under President Ronald Reagan.
What we were able to show is that the overpriced hammers and coffee brewers were priced by the same bloated pricing formulas used for weapons. As Air Force whistleblower Ernest Fitzgerald said at the time, “Those Air Forces planes you see flying in the sky are actually overpriced spare parts flying in close formation.”
But as time went buy and despite serious efforts by the Congress in the 1980s, the DoD kept marching along using historic costs, with all the waste, as the baseline for determining future purchase prices.
The $436 hammer was one of the best illustrative cases. After Congressman Berkley Bedell (D-Iowa) found this overpriced hammer in the Navy procurement system, he asked the Navy auditors to audit the costs and show where the fraud and waste were located. The Navy dutifully audited the hammer costs based on approved cost formulas and found that the costs on the hammer were “exorbitant but legal.” In other words, the markup on the hammer by the contractor was outrageous, but the Navy had approved the markups, thereby institutionally legalizing these ridiculously high prices for the baseline in the future.
The following chart, taken from Navy documents, demonstrates how a $7 hammer, purchased by Gould Corporation in the 1980s, grew to cost the Navy $436.
Remember, these are markups and time billed for every hammer.
Gould, Simulated Systems Division