What justifies the Defense Department's huge appropriation of tax dollars every year? The folks at Defense know the most politically unassailable answer: we need a strong national defense to protect our American system. So it's ironic that DOD itself shuns one of the prime features of the system it claims to protect: free enterprise.
Since World War II, the percentage of weapons procurement contracts awarded by open and free competition has steadily declined. Now, only about 6 percent of the Pentagon's contracts are actually open to the fresh air of market competition—although the defense bureaucrats try to tell a different story.
In the last five years there has been one weapons horror story after another involving cost overruns, defective products, and million-dollar overcharges, putting the Pentagon under pressure to increase true competition in handing out contracts. Right now, depending on what office in the DOD is presenting the numbers, the Pentagon is telling the public and Congress that the extent of competitive contracts is between 40 and 75 percent. What they don't tell is that those numbers include "negotiated contracts" and other loopholes they've found in federal procurement laws.
True competition requires formal advertised sealed bids, or FASB. The Pentagon advertises the item needed, any company can bid on it, and the lowest bidder judged realistically able to do the work gets the contract. But in negotiated contracts, the Pentagon bureaucrats select a few favored contractors to submit bids and then negotiate until they have a winner. Negotiated contracts look like competition only compared to sole-source contracts, one of the most common methods of procurement. Here, the Pentagon decides that only one contractor should do the job and works out what both parties think is a "reasonable" price. Unfortunately, those "reasonable" prices have been showing up in outrageously overpriced and poorly designed spare parts and weapon systems.
In 1982 the General Accounting Office (GAO), using the traditional statistical method, found that only 5.8 percent of military procurement contracts were FASB. They also discovered that the Pentagon was inflating that figure to 7.6 percent by including the budget of the Army Corps of Engineers, which is nonmilitary and had never previously been included. Why? In order to claim that the level of competition was improving.
Even using Defense's now-inflated system, the level of FASB competition has continued to decline. An "improved" 7.6 percent in 1981 had become 5.5 percent by 1984. It seems that the Pentagon is just interested in the appearance of doing something to improve weapons procurement by injecting a dose of competition.
Intentionally or not, Congress recently made it even easier for the defense spenders. In 1984 our representatives in Washington passed a bill supposedly designed to increase competition in Defense contracting.
Up until then, the law had made FASB the main goal for DOD contracts but allowed for 17 exceptions. It was by taking full advantage of these that the Pentagon had brought true competition down to such a miserable level. The new law makes matters even worse, however. It lays out the specific circumstances for using FASB and makes negotiated contracts the new standard for program managers. So after many years of working hard to get around the FASB requirement, the Pentagon can now legitimately ignore a full and open competition that would include small businesses and new companies trying to break into the defense field, putting downward pressure on weapons costs and providing an incentive for improvements in quality.
Some in the Pentagon insist that large items such as aircraft cannot be "competed" because they are only made by one company. This has been the bureaucratic response, for example, to a "creeping capitalism" bill introduced by Sen. Charles Grassley (R–Iowa) that would require the amount of FASB competition to be increased by 5 percent a year until 70 percent of the procurement budget is subjected to true competition.
Impossible, says the Pentagon: General Dynamics must always produce the F-16, and McDonnell Douglas must always produce the F-15; therefore, they must have sole-source contracts for those planes. In fact, however, these planes were designed by defense-contractor engineers whose salaries were paid by the taxpayers via the DOD. And the DOD, according to federal law, owns the design and could take its business elsewhere.
This isn't a fanciful suggestion. Aircraft production used to be done this way, and the B-47 bomber is a good example. When production started in 1950, the B-47 was an advanced, state-of-the-art bomber. Although it had been designed by Boeing, 1,692 B-47s were manufactured not just by Boeing but by the other two major aircraft companies at that time, Lockheed and Douglas. This is just one example. Competition can be introduced even for large-ticket items such as aircraft.
But reform is evidently not going to come from within. If the public really have had enough of ineffective spending and waste in the Pentagon, they will have to convince Congress to insist in one way or another that the Pentagon embrace the free-market competition this country was built on.
Dina Rasor is the director of the Project on Military Procurement and the author of The Pentagon Underground.
This article originally appeared in print under the headline "Viewpoint: If We're Serious About Weapons Waste...".