Military price gouging is one of those stories that never seems to end. From the $400 hammers of the 1980s to the $14,000 toilet seats of the 2010s, examples abound of contractors charging the Pentagon obscene amounts of money for everyday products.
This year, new reporting from 60 Minutes revealed that the Pentagon had been paying as much as $10,000 for $300 oil pressure switches, and an RS investigation found that the Department of Defense had purchased four trash cans at a cost of nearly $52,000 per unit.
Despite all of these examples — and the supposedly tight ceiling on spending in this year’s federal budget — Congress has been loath to do much of anything about the problem. When the House passed its annual defense policy bill last week, it contained more measures relating to hot button issues like abortion and the rights of LGBTQ soldiers than it did for reining in military contractors.
Rep. Chris Deluzio (D-Penn.) wants to change that. The Iraq War veteran has wasted no time in taking on the military-industrial complex since he got to Congress in January, joining with Sen. Elizabeth Warren (D-Mass.) and like-minded lawmakers in the House to introduce a series of proposals that would force weapons companies to negotiate more fairly with the Pentagon.
I caught up with Deluzio over email to better understand how military contractors are price gouging DoD and what Congress should do to stop them. The following conversation has been lightly edited for length and clarity.
RS: How widespread is contractor price gouging? Do you have a sense of how much this costs taxpayers each year?
Rep. Deluzio: The intense consolidation of the defense industrial base makes it too easy for contractors to price gouge, ripping off the military and the public. Without competition driving prices down, and with systems in place that pre-pay for costs, companies can charge exorbitant amounts for their services, supplies, and weapons.
It is hard to estimate the full amount of public money that is wasted through contractor price gouging due to a concerning lack of transparency. However, we know for certain that this number is too high. For example, only contracts higher than $2 million require disclosure of certified cost and pricing data to the government. And if an item is designated “commercial” (meaning it is sold to the general public, or has been negotiated as similar to a type of product that can be found in the commercial marketplace), the law doesn’t require disclosure of such pricing data. This is how defense contractors can sell items such as military aircraft to the government with essentially no cost transparency. These loopholes allow contractors to waste the public’s money and hurt our military readiness.
RS: How does this affect military readiness?
Deluzio: Higher prices are symptoms of a lack of economic competition. Without real competition across so much of the defense industry, contractors are not motivated to deliver on-time or the highest quality products. The Pentagon is worried about this problem, pointing to delayed products and poor-quality deliverables. These problems leave our warfighters without the tools they need to keep us safe.
"[D]efense contractors can sell items such as military aircraft to the government with essentially no cost transparency. These loopholes allow contractors to waste the public’s money and hurt our military readiness"
RS: What drives this price gouging? Does the blame lie entirely with contractors?
Deluzio: Without competition, regulation, or thorough transparency, prices go uncontrolled. The blame also falls on regulators, legislators, and administrations who have, so far, done very little to rein in this out of control corporate power over our nation’s military and armed forces.
RS: You've introduced a few proposals that would force contractors to give certified cost and pricing data to the Pentagon, and one that would name and shame companies that fail to do so. Why is this data important? How would it help fight price gouging?
Deluzio: Without the comparative data, defense contractors can claim innocence from intentional price gouging. This amendment will put more teeth into the disclosure requirements so that the Department of Defense, the Congress, and the public can better see the discrepancy between the certified cost and prices and the actual ones charged by contractors. This information will arm the public and others with information they need to bring pressure on bad-actor companies and will help support efforts to increase competition and accountability in the defense industry.
RS: Are there other initiatives that people should look out for on this? How hopeful are you that any of these efforts will pass this year?
Deluzio: The most comprehensive proposal that I am working on is the “Stop Price Gouging the Military Act.” This bipartisan bill would strengthen acquisition laws to help prevent price gouging by military contractors. Loopholes in current acquisition laws make it nearly impossible for the Pentagon to obtain the data necessary to prevent price gouging. This legislation seeks to close those loopholes, tie financial incentives for contractors to performance, and provide the Pentagon with the information necessary to prevent future rip-offs.
"Loopholes in current acquisition laws make it nearly impossible for the Pentagon to obtain the data necessary to prevent price gouging."
This bill was introduced by Sens. Mike Braun (R-Ind.) and Warren, and I’m hopeful that this bill will see some action following the recent blockbuster reporting on this problem.
RS: How does your military service inform your work on Pentagon price gouging?
Deluzio: I am proud of my service to this country, and it was a great honor to lead Americans in uniform in Iraq and at sea. But from that experience, I know that our defense industrial base can do better, and we need action from Congress to make it happen. Anyone who’s served in uniform has stories about wasteful spending in the military. Everyday items cost an arm and a leg more than they ever should. When our service members are outside the wire, or in harm’s way, they should never have a second thought about whether their gear, their weapon, or their vehicle is up to the fight. It can be a matter of life and death.
RS: You recently joined with Elizabeth Warren and a pair of other lawmakers on a letter to Secretary of Defense Lloyd Austin that raised questions about a merger between L3Harris and Aerojet Rocketdyne. Can you explain your concerns with this merger? How would it affect taxpayers? Why should people care about defense industry consolidation?
Deluzio: We need competition in the defense industry. I sent this letter with my colleagues because the Department of Defense should do a full, transparent review of the L3Harris and Aerojet merger. It raises serious anti-competitive concerns in an already consolidated market, and I am concerned this merger will hurt the American people and our common defense by further weakening competition in the defense industrial base.
"When our service members are outside the wire, or in harm’s way, they should never have a second thought about whether their gear, their weapon, or their vehicle is up to the fight. It can be a matter of life and death."
Aerojet already holds a monopolistic role in the market, as companies like Lockheed Martin and Boeing depend on products produced only by Aerojet. A merger with L3Harris would put it in the position to leverage their control over those products. Further, recent shortfalls in the domestic solid-rocket motor industrial base have already prompted a study by the Defense Department to see the possibilities of establishing an additional source. My request is simple: the Pentagon should do its job and let the American people and antitrust enforcers know if this merger will hamper competition in the defense industry.
