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Thursday, May 01, 2008
Op-Ed Dismissive of Contractor Oversight, Calls for More Contractors
WaPo published an op-ed Monday in which former senior Department of Defense officials Dov S. Zakheim and Lt. Gen. Ronald T. Kadish (Ret.) note a recent GAO report that finds massive cost and schedule overruns in weapons acquisitions by the Pentagon. The report implicates a degradation of competition between contracting firms resulting in, according to Zajheim and Kadish (ZK, hereafter), "a kind of 'design bureau' competition, similar to what the Soviet Union used."
 After complaining about an Air Force tanker project won by EADS, a European defense contractor, ZK conclude that what's really needed to curtail waste, fraud, and abuse in military contracting is increased competition in the defense market spurred by an increase in domestic defense firms. Without really explaining why, they also claim that "[m]ore regulations and bureaucratic restrictions on contractors are not the answer."
Although the consolidations helped contractors survive the spending cuts, they now threaten to undermine the industry. That's because many in Congress and at the Pentagon want to impose stricter oversight and controls on weapons manufacturing and development while simultaneously demanding more competition -- driving the system to an immature and evolving "globalized" marketplace.
Here's the thing though: Better oversight and better procurement practices may not "fix the problem," but because of the nature of the defense "market," it may be the government's only tool to increase acquisition value.
ZK's market-based solution is undermined by the fact that the domestic national defense market is not a market that operates the way textbooks say it should operate. The market for military goods and services is the furthest thing from perfectly competitive, because the federal government is a monopsonist (i.e. a single buyer in a market) and the decisions to purchase certain arms are made by a political body whose interests extend beyond getting the best value for taxpayers. Plus, Blackwater USA and AEY are two infamous examples that not only create doubt that bringing in many small and mid-sized firms would increase contractor performance, but indicate a need for more and better oversight.
It is not clear, therefore, that chipping away at the defense contractors' oligarchical powers should rise to the top of the list of ways to force contractors to behave, especially when enticing new market participants means pouring even more money into the defense sector. And ultimately I think that's what ZK are really after: Encouraging Congress to add more to the defense budget while curtailing the "wrong" type of competition, rather than create an environment in which defense procurement results in higher quality outcomes. That their employer, Booz Allen Hamilton, took in $419 million in defense contracts (and over $10 billion in federal contracts) from FY 2000 through Q1 FY 2007, ZK's "solution" may be motivated by more than concern for taxpayer value.
Posted by Craig Jennings
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