Time is running out for Congress to pass the annual defense policy bill. After the election, lawmakers must reconcile the differences between their versions of the National Defense Authorization Act (NDAA) and set the topline for Pentagon spending in fiscal year 2025. When they do, they must strip two measures that will make it easier for contractors to engage in price gouging.
While the House abided by the spending caps Congress established in last year’s debt deal, the Senate added about $25 billion to the president’s budget request for the Pentagon — bringing the department’s topline to a whopping $912 billion. This is excessive, and the increase will not make Americans any safer. Lawmakers should communicate that to those negotiating the final NDAA.
Members of Congress cannot, however, overlook two seemingly benign provisions in the House version of the bill. If retained, Sections 811 and 812 of the House-passed NDAA would bolster contractors’ ability to price gouge the Pentagon — already a significant issue for the military. Just this week the Department of Defense (DOD) Inspector General found that Boeing overcharged the Air Force by nearly a million dollars on various products for the C-17 military transport aircraft. In one case, Boeing overcharged the military for a soap dispenser by nearly 8,000%, more than 80 times the commercial price.
A million dollars is a drop in the bucket when it comes to overall Pentagon spending. But this isn’t the first time Boeing has price gouged the department, and the practice is rampant throughout the arms industry. Two weeks ago, the Department of Justice (DOJ) announced that Raytheon will pay nearly a billion dollars to resolve a government investigation that exposed the company for overcharging on government contracts. Whistleblowers exposed both Boeing and Raytheon for price gouging. Without them, the agencies may have never discovered that the contractors overcharged taxpayers.
Unfortunately, the true scale of military price gouging is unknown. The Pentagon obligated $431 billion for military contracts in fiscal year 2023, nearly half of its total base budget. So, the government often relies on whistleblowers to alert it to potential price gouging by military contractors. Lawmakers can also request inspectors general to conduct investigations into potential misconduct. Several members are dedicated to this effort and to preventing contractors from overcharging the government in the future. Congress overall, however, has played an integral role in expanding the opportunities for price gouging.
Sections 811 and 812 of the House NDAA are part of a decades-long effort to legalize price gouging. Congress has achieved this goal, in part, by broadening the array of products and services considered to be commercial by the Pentagon. According to the Federal Acquisition Regulation, contractors are not required to submit to the Pentagon certified cost and pricing data for commercial products and services. These data include the cost of labor and the price of materials; they must be current, complete, and accurate.
More often than not, the Pentagon needs certified cost and pricing data to negotiate fair prices with military contractors. Certified data is particularly critical when the department is negotiating prices for products or services that may not be available in the civilian marketplace, or for which there is a sole source. In these cases, Pentagon officials have few other tools to ensure they are making fair deals with military contractors.
In theory, it would be easier for the Pentagon to negotiate reasonable prices for commercial products and services. Commerciality implies some level of price competition. But Congress has broadened the definition of commercial products and services to the degree that the designation has become virtually meaningless. There is no requirement, for example, that commercial products are sold to the public.
Section 811 would further expand what products and services are considered commercial, exempting an even greater portion of military contractors from certified cost and pricing data requirements. This would further erode the Pentagon’s bargaining power in negotiations with military contractors.
While Section 811 broadens the pool of so-called commercial products, Section 812 provides the Pentagon the green light to rely on uncertified cost and pricing data in certain cases. Uncertified data can be incomplete, dated, or inaccurate. Contractors can legally omit any information that may indicate to the Pentagon that they are charging 80 times the fair and reasonable price — as did Boeing for a soap dispenser.
Even the White House “strongly opposes” Section 812, asserting that it would disincentivize contractors from keeping costs under control, “creating unnecessary risk for taxpayers.” The provision would hamper some prime contractors’ ability to obtain certified cost and pricing data from subcontractors, increasing the likelihood that the prime contractors overcharge the government, which ultimately pays the bills.
The Pentagon is most capable of spending taxpayer dollars wisely when it obtains certified cost and pricing data. It helps the department assess a contractor’s costs, and thus, what its profit margins may be. Sections 811 and 812 of the House NDAA only hurt the Pentagon’s ability to negotiate fair prices on military contracts. By retaining them in the final NDAA, Congress would be acting against the best interests of both their constituents and the Pentagon.
