The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Procurement Blues: Competition Needed to Fix Defense Contracting

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


Upon assuming the office of Secretary of Defense in February 2015, Ashton Carter prioritized recruiting private sector companies – especially those in technology industries – to bid on contracts awarded by the Department of Defense (DOD).

Beyond the desire to tap into private sector innovation, the secretary ostensibly was seeking to increase competition in contract bidding.  According to a 2014 report by the Center for Strategic and International Studies, half of the proposals listed by the DOD receive only one bid.  Part of the problem is the Pentagon is viewed as being biased toward traditional contractors, often with good reason.

Of course, the handful of established defense contractors that handle the majority of large acquisition programs are entrenched for a reason:  Allies at the Pentagon typically make it as hard as possible for other companies to compete.  In two high-profile cases, companies took legal action to force access to the defense procurement process.

On October 28, 2016, the U.S. Court of Federal Claims ruled that the Army unfairly blocked the data analysis company Palantir from competing for a contract to upgrade the service’s Distributed Common Ground System (DCGS-A), produced by Raytheon.

The trials and travails of DCGS-A, which is meant to supply real-time access to intelligence, surveillance, and reconnaissance (ISR), have been well-documented, including by Citizens Against Government Waste.  The system is deeply flawed and has been a black hole for Pentagon resources.  DCGS-A has been criticized by the Army Testing and Evaluation Command (ATEC), the Government Accountability Office, and soldiers in the field.  Palantir contends (and many users agree) that it could perform the Army’s ISR mission more capably and less expensively.

Despite the widespread criticism of DCGS-A, the Army has historically backed Raytheon.  In one example that demonstrates the service’s preference for the established contractor, an Army official demanded that an April 2012 ATEC report recommending greater use of the Palantir system be revised to eliminate that proposal.

SpaceX, a relative newcomer to the space launch business, was also forced to sue in April 2014 in order to open up a competitive process.  On January 23, 2015, the company dropped its lawsuit against the Air Force in return for the service allowing it to bid, as well as provide an expedited certification process.  SpaceX was ultimately certified in July 2015.

Prior to the arrival of SpaceX, this sector was controlled by the United Launch Alliance, a joint venture of aerospace giants Lockheed Martin and Boeing.  ULA held a decade-long monopoly, and charged the exorbitant fees typically associated with market domination.  According to an October 26, 2016 Fortune article, “SpaceX’s offering is dramatically more economical than ULA’s.  It advertises its Falcon 9 rocket at a launch price of $62 million, compared with ULA’s ‘list prices’ of anywhere from $164 million to $350 million for an Atlas V launch.”

The threat from SpaceX resulted in immediate action by ULA, which announced on November 16, 2015 that it would not bid on the next round of DOD satellite launches, which would have been the first to be competed.  According to the October Fortune article, ULA also took steps to improve internal efficiency, including reducing executive positions by 30 percent, cutting supply chain costs by 36 percent, and doubling the speed at which it could build and deliver new rockets.  ULA also announced plans to design a new reusable rocket, which other aerospace companies, including SpaceX and Blue Origin, are already working on.

Clearly, without the lawsuit that led to competition with ULA, taxpayers would have continued to pay an inflated price.  SpaceX, Orbital ATK, and Blue Origin could inject further competition in this area, allowing the DOD to achieve even greater savings.

The DOD has also been forced to look to ULA’s competitors for launch services due to the existing political climate.  The company relies on Russian-made RD-180 engines, the supply of which was threatened in May 2014 by Russian Deputy Prime Minister Dmitry Rogozin, who supervises the country’s space industries.  While Russia has continued to sell the engines, members of Congress recognized the threat and moved in subsequent years to limit the number of RD-180s the DOD could purchase.

Many of the highest-profile and highest-cost procurement programs are managed by the same handful of entrenched contractors, spread across the services.  Lockheed Martin’s F-35 Joint Strike Fighter (JSF) is currently $160 billion over budget and seven years behind schedule.  On November 2, 2016, DOD officials stated the JSF would require a further $530 million to finish development.  Boeing’s KC-46 Pegasus tanker has also suffered numerous delays and cost overruns.  The company is set to miss its August 2017 delivery deadline, and is $1.3 billion over budget thus far.

The DOD can clearly rein in costs by opening up the opportunity for more companies to bid on procurement and relaxing barriers to entry.  In order to achieve that objective, the DOD’s track record of impeding new entrants and clear preference for working with established contractors will have to be overcome.

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