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For once, weapons firms take an L on defense bill mark up

While lawmakers moved to rein in contractor costs, it wasn’t all doom and gloom for the arms industry.

Analysis | Military Industrial Complex

Pentagon contractors didn’t get much airtime during the House Armed Services Committee markup of the annual defense policy bill last week. Never mind the fact that the arms industry receives almost half of the military budget, or that they stuff their shareholders' pockets excessively at the taxpayers’ expense.

Still, the committee managed to deliver a mixed bag of contract-related proposals — a pleasant departure from the defense industry’s usual unadulterated triumph in this bill.

Starting on a positive note, Rep. Chris Deluzio (D-Pa.) — both a freshman and newcomer to the committee — offered an amendment to name and shame companies that sabotage contract negotiations for their financial benefit. Adopted by the committee on a bipartisan basis, the amendment requires the Pentagon to publicly identify contractors that delay providing the Pentagon "accurate, complete, and current" cost information during contract negotiations.

This certified cost information is critical for the department to negotiate fairly priced contracts. According to the Government Accountability Office, less than 1 percent of about 542,000 Pentagon and NASA contracts required certified cost and pricing data in fiscal year 2020. Even when cost data is required, military contractors often refuse or delay providing it to avoid negotiating fair deals — and in the absence of competition, there’s a pretty good chance those companies will receive the contract award anyway. It’s nearly impossible to find out for sure, since the Pentagon doesn’t track delays publicly (if at all), much less their impact on the time it takes the department to award contracts.

Rep. Deluzio’s amendment would help fix that by shining light on the worst offenders in the defense industry. Publicly tracking the companies that stall contract negotiations would help the department better understand if, or how often, the Pentagon awards contracts to companies that haven’t provided certified cost information — on the few occasions it’s actually required. Not only would the amendment illuminate which companies essentially force the department’s hand into bad deals, but it would also hopefully disincentivize them from doing so.

While the amendment is a big step toward increasing contractor accountability, weapons firms didn’t come away from committee markup empty handed.  

The committee adopted an amendment from Rep. Brad Finstad (R-Minn.) that would authorize retroactive price increases to existing Pentagon contracts, without any evidence for their need. Funnily enough, Sen. Kevin Cramer (R-N.D.) offered the same exact amendment — and I mean verbatim — to the Senate version of the fiscal year 2023 NDAA. He argued the amendment would provide “contract flexibility” to “tackle rising costs” for contractors impacted by inflation, without any public data on those costs. That amendment ultimately failed, in part because the Pentagon asked for evidence of inflation impacts that contractors never provided.

The department also repeatedly pointed out that it has no authority to increase prices for firm fixed price contracts specifically, unless the contract contains a clause specific to authorizing price adjustments. After all, the whole point of a firm fixed price contract is that the price is set in stone. But the amendment to authorize contract price increases was also unnecessary because military contractors already had access to extraordinary inflationary relief through an existing law.

Of course, Congress ended up significantly amending that law to grant military contractors easier access to inflation relief in the final fiscal year 2023 NDAA. I wrote about that provision a few months ago, noting that the Pentagon may be slow to issue congressionally mandated guidance on implementing the new law. Nearly seven months after the law’s enactment, the Pentagon still hasn’t issued guidance on implementation. It was due March 23.

Even with no guidance on how the Pentagon will implement the new authority to increase contract prices, the House Armed Services Committee adopted Rep. Don Bacon’s (R-Neb.) amendment to extend the authority another year. It remains to be seen if or when the Pentagon will produce the guidance, but it’s worth noting that contractors still haven’t provided any public data demonstrating the need for inflation relief. The Pentagon has been asking for it since at least last September. But contractors clearly don’t respond well to data requests.

And lawmakers are in very different places when it comes to contractor accountability. Rep. Deluzio successfully pushed for information that will help the Pentagon determine the extent to which military contractors intentionally stall contract negotiations to avoid providing cost data. That information ultimately helps the Pentagon tackle the price gouging issue by ensuring it’s negotiating fair prices on contracts. Other lawmakers seem to disdain data-driven work by granting military contractors pricing adjustments with zero evidence of their need, turning an inflation bailout into an ever-flowing money spigot.

Nevertheless, I’ll take a mixed bag over a slam dunk for the defense industry any day.

Editorial credit: 4kclips / Shutterstock.com
Analysis | Military Industrial Complex
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