Taxpayers are set to get fleeced in a major defense contract agreement thanks to the lack of market competition in the Pentagon’s procurement process.
Traditionally, weapons buyers at the Defense Department are limited in their choices when selecting potential suppliers for our nation’s weapons systems. The U.S. defense industry has consolidated to an alarming degree since the conclusion of the Cold War. Dominant suppliers, including Northrop Grumman, Lockheed Martin and Boeing, hold immense sway throughout the contract procurement process.
The limited competition leads to higher-priced defense contracts that are often over-budget and behind schedule. Sole-sourcing contracts can compound these issues by removing market incentives to control costs, leaving taxpayers to foot a higher-than-anticipated bill. Given the Pentagon is still hot on the heels of failing its first ever financial audit, you would expect the Defense Department to be doing everything in its power to promote competition and rein in cost.
Instead, the Pentagon just cleared the way toward awarding an $85 billion nuclear missile program to a sole-sourced provider and will be doing so without considering any competing offers.
Since 2017, Boeing and Northrop have been sparring over the Air Force’s nuclear weapons program called the Ground Based Strategic Deterrent (GBSD), which will replace the U.S. military’s aging stock of intercontinental ballistic missiles. This weapons production program is one of the Pentagon’s most expensive, with the long-term costs estimated between $62 billion and $100 billion.
However, Boeing was forced to withdraw from GBSD competition in July, citing Northrop Grumman’s acquisition of the company Orbital ATK — one of only two solid rocket motor manufacturers in the U.S. The move effectively boxed out Boeing from being able to compete for the contract as Aerojet Rocketdyne, the only other U.S. manufacturer of rocket motors, is also working with Northrop. When competition is limited, corporate strategies become simple. Northrop partnered with one manufacturer and bought its competitor.
The Air Force responded to Boeing’s withdrawal from GBSD competition by halting funding for Boeing’s $349 million ballistic missile development effort known as the Technology Maturation and Risk Reduction (TMRR) contract. According to analysis from Defense News, the “decision to cut short the TMRR contract would effectively hand the GBSD award to Northrop Grumman, the sole company competing against Boeing to produce the weapon system.”
Teal Group aerospace analyst Richard Aboulafia went even further, telling The Washington Post that the Air Force’s decision “made it clear that they don’t want Boeing to be a part of the bid.”
Barring a significant change of course, the Air Force will now award the contract for an $85 billion defense program to a sole-source contractor in a process where there is only one bidder.
To add to taxpayer concerns regarding run-away costs, Northrop’s proposal is based upon a “cost-plus” model rather than “fixed price,” meaning the contractor is paid a set price plus an agreed upon percentage of the costs of producing the weapons system.
Cost-plus models invite both wasteful spending and fraudulent cross charging — an all too common process where contractors boost profits by improperly shifting the costs and expenses of one defense contract to another. A now infamous example of cost-plus contracting gone wrong is the Air Force’s own F-35 Joint Strike Fighter program, which is now a near decade behind schedule and a staggering $200 billion over budget.
The Air Force cannot afford to repeat similar mistakes on a project as crucial as the GBSD, which will replenish the strength of U.S. intercontinental ballistic missiles. The maintenance and replacement of our nation’s intercontinental ballistic missile stockpile is a necessary cause and deserving of taxpayer dollars. But that doesn’t mean the Air Force gets a blank check with no accountability.
Pentagon officials overseeing the procurement process are responsible for being good stewards of taxpayer money. Awarding an $85 billion contract through a process with only one bidder is clear-cut evidence that the Pentagon is falling short of its responsibility.
• Mike Palicz is federal affairs manager at Americans for Tax Reform.