Beware arms makers exploiting Ukraine war to profit, avoid oversight

In an effort to expedite aid to Ukraine, lawmakers are relinquishing accountability measures to grant the Pentagon what have been characterized as “wartime procurement powers.” 

These emergency authorities enable the Pentagon to deliver Ukraine more weapons, faster. And with fighting in eastern Ukraine intensifying, the Ukrainian military’s need for munitions only grows. Ukraine’s continued sovereignty likely depends on them. 

But as the Pentagon’s “wartime procurement powers” boost production of high-priority munitions for Ukraine, lawmakers should consider how they impact the U.S. defense industry. Some emergency authorities could reduce competition in the industrial base by further consolidating weapons production, which may accelerate the provision of munitions to Ukraine but also sets the stage for even more corporate price gouging of the military. 

In the final defense policy bill, which cleared the House and just passed the Senate on Thursday, lawmakers waived key contracting regulations in emergency procurement powers the Pentagon will maintain through fiscal year 2024. In so doing, lawmakers increase the risk of wasteful spending because they simultaneously reduce the Pentagon’s due diligence to award contracts while offering companies unusually long contracts, making it easier for contractors to overcharge the government. 

Congress doesn’t typically provide multi-year authorities to procure munitions smaller than Navy vessels and major aircraft, so the authorities are particularly significant — especially since they supersede usual regulations designed to prevent corporate price gouging. And while lawmakers have included other measures to limit profits and limit prices to those recently paid, they aren’t enough to prevent corporate price gouging.

According to former Pentagon acquisition chief and industry insider Ellen Lord, multi-year authorities encourage military contractors to make the capital investments necessary to increase output. Those investments increase production capacity to speed up the provision of Ukraine aid, but their staying power threatens to permanently expand the weapons industry. Lawmakers must beware the fact that multi-year authorities give contractors greater ability to overcharge the Pentagon going forward, even if they simultaneously expedite the provision of U.S. aid to Ukraine. 

In some cases, for example, contractors doing Ukraine-related work are not required to provide the Pentagon certified cost and pricing data — information the Pentagon needs to avoid getting ripped off by military contractors. The department needs this data to make sure a company fairly prices the goods and services for a job before it awards that company a contract. The Pentagon’s Office of the Inspector General has made this clear, calling cost data the most reliable source of information for contracting officers “to ensure that the U.S. Government obtains the best prices when negotiating contracts for goods and services.” 

Given the defense industry’s history of overcharging the Pentagon, sometimes to the tune of more than 3,000 percent, lawmakers should only be strengthening requirements for contractors to provide certified cost and pricing information — not expanding opportunities for contractors to price gouge. 

Boeing already appears to be pushing the envelope on certified cost and pricing data with a proposal to develop a new long-range precision strike weapon for Ukraine. The Pentagon is now considering the company’s plan to produce ground-launched small diameter bombs (GLSDB), which includes a waiver to exempt the company from providing cost and pricing information before winning the contract award.

It’s unclear why Boeing needs a waiver, especially since the GLSDB is a combination of the GBU-39 small diameter bomb and the M26 rocket motor — both of which are common and sourced relatively easily from existing U.S. suppliers. But industry’s resistance to providing the Pentagon certified cost and pricing data is likely driven more by profits than by time sensitivity.

In fact, there’s little evidence to suggest providing the Pentagon certified cost and pricing data even slows contractors down. The Pentagon doesn’t track when contractors delay providing cost and pricing data (much less for how long) and the pressure is on contracting officers to make a contract award in a timely manner rather than on the contractors competing for awards. 

Boeing’s recent proposal reflects just one accountability gap in the Pentagon’s acquisition process that the war in Ukraine has highlighted. Beyond the issue of corporate price gouging, the Pentagon already struggles to deliver weapons and equipment on time and within budget. The Government Accountability Office (GAO) reported this summer that over half of major defense acquisition programs (MDAPS) reported delays to capability deliveries in the past year, with several programs stating the total delay time was unknown.

In 2020, the GAO reported that the average delivery delay for MDAPS was over two years, and that the cost growth was over $628 billion — or 54 percent in total cost growth. The GAO was unable to evaluate cost growth of MDAPs in 2022 due to lack of data. 

With fewer guardrails in place, the Department of Defense is likely to dig itself an even deeper hole as wartime procurement authorities expand both production capacity and the margin for waste. Because of this, advancing a more accountable weapons acquisition process at the Pentagon is more important than ever. 

But oversight is too often viewed as an impediment to acquisition efforts rather than a strength. One anonymous senior congressional aide has said “we can’t pussyfoot around with minimum-sustaining-rate buys of these munitions,” implying that the United States is playing around without wartime procurement authorities that bypass oversight measures. The staffer even expressed disbelief that one could prioritize anything more than “buying a ton of munitions for the next few years, for our operational plans against China and continuing to supply Ukraine.” 

It’s telling that this anonymous source mentioned China before Ukraine in a discussion explicitly focused on Ukraine war contracting. They note “operational plans” that I would very much like to see. That aside, their comments reflect an increasingly common association between expanding production capacity to support the Ukrainian war effort and preparing for a war against China. But the entity most interested in a military conflict with China is the U.S. defense industry — the same industry with the most to gain from lawmakers compromising on accountability measures in weapons acquisition that will expand as the war in Ukraine continues. 

There is no doubt the defense industry will leverage capital investments made to service Ukraine as a means to maintain increased weapons production even after the war eventually ends. At the recent Reagan National Defense Forum, industry executives and Pentagon officials discussed how the war in Ukraine has illuminated industry’s vulnerabilities — specifically in the context of producing weapons for a potential war with Russia or China. But lawmakers can’t allow the war in Ukraine to become another pathway for contractors to pursue excess profits at the expense of the Pentagon and taxpayers. More money doesn’t solve acquisition issues; it exacerbates existing ones and clears the path to more waste, fraud, and abuse. 

Take the Navy’s latest surface ship programs. The Zumwalt-class destroyer and the Littoral Combat Ship are multi-billion-dollar acquisition disasters that left the Navy with ships unable to perform their intended duties. Both programs were packed with new technologies and constructed before their development was complete, the perfect recipe for expensive disappointment. Indeed, the Navy has already tried and failed to decommission LCSs, the youngest of which were only commissioned 2 years ago! These problems are real and growing, and lawmakers can only ignore acquisition issues for so long before even billions of dollars can’t mask reality.

The United States has done the right thing helping Ukraine defend its sovereignty, but that shouldn’t mean lawmakers throw their hands up when it comes to accountable weapons acquisition. The anniversary of Russia’s gruesome invasion of Ukraine is fast approaching, and the United States can’t afford to continue neglecting longstanding acquisition issues only compounded by efforts to quickly deliver Ukraine the resources it needs to defend its borders.