The Weapons Edge
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|Sharon Weinberger||October 28th 2011|
Not long after the terrorist attacks of 9/11, the Air Force went looking for a new fleet of aircraft.
More precisely, it went straight to the dealerâ€”without shopping around. The service drew up a plan to lease 100 aerial refueling tankers from Boeing, saying it had an urgent need to replace its aging, Eisenhower-era KC-135 aircraft. The Air Force planned to award the multi-billion-dollar contract for a new tanker based on the Boeing 767 as a â€œsole source,â€ meaning there would be no opportunity for a formal competition.
The unusual lease-to-own deal was approved by the Defense Department and three Congressional oversight committees, despite criticism from budget analysts who contended that the sole-source lease/buy option would cost the Defense Department approximately $37 billion.
But the tanker lease contract never went through.
The deal was derailed after it came to light that Darleen Druyun, a senior Air Force official involved with the tanker negotiations, had also conducted job talks with Boeingâ€™s then-chief financial officer, breaking federal conflict-of-interest laws. Druyun, who pleaded guilty and was later sentenced to nine-months in prison, also admitted to allowing Boeing to negotiate an inflated price as part of the deal. The Air Force did eventually settle on a replacement for the KC-135, after a long competition that was won by Boeing in 2011.
In another example of military largesse at the taxpayersâ€™ expense, Air Force officials pushed to sole-source the purchase of new helicopters to patrol its nuclear missile fields, replacing aging UH-1 Hueys. â€œI can use an existing contract to purchase helicopters,â€ said Lt. Gen. James Kowalski, the head of Global Strike Command, according to Flight International, a trade publication.
Kowalski argued that the Air Forceâ€™s â€œurgent and compelling needâ€ for new helicopters justified a sole-source contract reportedly worth $1 billion, even as he acknowledged the need for the new helicopters had existed since the mid-1990s. After complaints from other companies, however, the Air Force rolled over and said it would hold a competition to buy the new helicopters.
Despite the rhetoric about competitive contracting and increasing efficiencies, one thing is clear, at least from the public data: the Pentagon does not, on the whole, appear to be awarding contracts more competitively now than in the past. According to federal data, the Pentagonâ€™s competed contracts, based on dollar figures, fell to 55 percent in the first two quarters of 2011.
Not everyone agrees the numbers on their own are that damning, however. â€œThe vast majority of the dollars on sole source contracts are simply follow-ons to large contracts,â€ said Jacques Gansler, who served as undersecretary of defense for acquisition, technology and logistics from 1997 to 2001.
Gansler, now at University of Marylandâ€™s School of Public Affairs, said itâ€™s important to look at the contracts as a whole, and not just at the dollars. However, a review of data revealed those numbers are even worse, showing that only 40 percent of all â€œactionsâ€ were competed from 2008 to 2010.
Gansler is a critic of certain contracting activities, like the indefinite delivery/indefinite quantity contracts that have become widespread, and can end up costing the government more than bidding individual contracts. He also said there are opportunities for increasing competition by breaking up large contracts for major weapons. He argued, for example, that the Pentagon could have re-competed the tanker aircraft purchase every few years, rather than awarding the entire contract to Boeing, as an incentive to curb costs.
Other outside analysts are less charitable about the Pentagonâ€™s record. There simply hasnâ€™t been much improvement in the Pentagonâ€™s record of competition, according to Steven Schooner, a professor of government procurement law at George Washington University School of Law. He said any improvementâ€”â€œslight as it may beâ€â€”doesnâ€™t necessarily translate to meaningful competition.
While itâ€™s hard to measure the costs of lost opportunitiesâ€”tax dollars that would have been saved if contracts were competed openlyâ€”the congressionally established Commission on Wartime Contracting in Iraq and Afghanistan cited cases where there was clear evidence that opening contracts to multiple vendors saved money. In one example, an Army cost analyst told the commission in May 2010 that moving to LOGCAP IV, the successor to LOGCAP III, was going to save 8.1 percent in costs. However, that same month the Army announced it would extend the existing â€œconciergeâ€ contract with KBR, rather than moving work to LOGCAP IV, which would have put other contractors in the mix.
In its final report, issued in September, the commission underscored the importance of competitive bidding. â€œCompetition that is merely illusory undermines the U.S. governmentâ€™s ability to obtain the best value for taxpayersâ€™ money and to foster excellent contractor productivity and performance innovation,â€ the report said.
Competition helps in myriad ways, from price to quality, according to Scott Amey, general counsel for the Project on Government Oversight (POGO). â€œIf you know somebody else can step in, it acts as an incentive for the incumbent to do good because the next contract could be awarded to someone else,â€ he said. â€œTo play the skeptic, if you know no one else is out there, will the contractor be performing at 110 percent?â€
One example of costs savings is the Air Force tanker. It was one of the first large proposedâ€”albeit thwartedâ€”sole-source contracts to emerge in the post-9/11 era. While some may lament the nearly decade-long battle between EADS, a European company, and Boeing, the benefits for taxpayers were apparent. According to EADS, the competition saved the Air Force $16 billion by driving down Boeingâ€™s offer price. The Air Force, for its part, says that it got a 20 percent cost reduction from Boeing by having a competition, which still places the savings in the billions of dollars.
If Gansler, the former chief Pentagon acquisition official, is correct, breaking that award into multiple competitions might have resulted in even more savings.
For Charles Tiefer , a member of the Wartime Contracting Commission, the failure to instill more competition in DOD contracting is a series of disappointments that followed a promising beginning by the Obama administration. â€œAt the time it looked very real,â€ said Tiefer, â€œ[Obama] was saying the same things he said in his campaign.â€
â€œItâ€™s 2011 now. Where is it?â€ Tiefer asked. â€œWhereâ€™s the follow-up? Whereâ€™s the implementation? Whereâ€™s the policy?â€