For more than two years, U.S. soldiers in Afghanistan have been operating with a severe shortage of a specialized piece of equipment needed to defend against deadly roadside bombs.
In 2008, U.S. commanders began asking the Pentagon for hundreds of specially designed rollers — large metal wheels mounted on the front of military vehicles to absorb the brunt of a blast. In response, the Army brass has ordered a total of 2,000 Self-Protection Adaptive Roller Kits, or SPARKs, at a cost of $262 million.
But as of today, only about 700 have been delivered to the field, leaving soldiers with only about a third of the order. And with rollers being periodically destroyed by exploding bombs, demand is only growing.
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Several senior members of Congress have called on the Pentagon to hire a second company to build more SPARKs and close the gap. But Army officials say that simply isn’t an option.
The reason? When the Army awarded U.K.-based Pearson Engineering a no-bid contract to build the rollers, it never secured from the company the technical data rights needed to permit a second manufacturer to build the rollers. As a result, the Army says it has to stick with Pearson.
The lack of competitive bidding in Pentagon contracts is notorious. But the problem extends well beyond the highly publicized cases that stem from a cozy or even possibly corrupt relationship between Pentagon officials and contractors. It includes cases, such as the roller deal, where the Pentagon gets locked into a single supplier because of the terms of the contract. It includes one-bid deals, in which a competition is structured in a way that draws only a single company. And it is exacerbated by a consolidation in the industry, meaning fewer big players available to go after Pentagon business.
The result, according to newly available Defense Department data, is that more than half the Pentagon’s total budget obligations for contracting last year were spent without effective competition or with no competition at all. That comes to about $188 billion, according to numbers provided by the Pentagon.
These figures make clear that the problem is more extensive and more complex than even many close observers of the military realize. Some lawmakers, including those on committees with jurisdiction over defense, were surprised when they heard the figures, and they said they expect the lack of competition to become part of the discussion on how to reduce federal spending over the next decade.
“It’s a stunning number,” Carl Levin, the Michigan Democrat who chairs the Senate Armed Services Committee, said when told about the figures. “It’s a big issue for us.”
It’s not just about the price tag. On the roller contract, for example, key lawmakers and defense policy observers say lack of competition has caused delays at a particularly perilous time for U.S. soldiers. The U.S. casualty rate from improvised explosive devices has soared in Afghanistan to 3,366 U.S. troops wounded by IEDs in 2010 and 268 killed. That’s more than 60 percent of combat deaths in Afghanistan, and the 2010 IED casualty figure is higher than the total from the previous eight years of war.
“This is a life-and-death issue,” Gene Taylor, a 10-term Democratic representative from Mississippi who was a senior member of the House Armed Services Committee before losing his re-election bid last November, said in an interview last year. “If we lose one kid in Afghanistan because it took us too long to get those mine rollers, then shame on all of us.”
Democrats and Republicans on Capitol Hill have criticized the Pentagon for its heavy reliance on similar no-bid contracts for war-related needs in Iraq and Afghanistan. But the lack of competition is simply how the Pentagon normally does business. As a result, it gets locked into inflexible contracts, guaranteeing lucrative long-term deals for favored contractors and probably costing the government billions of extra dollars each year.
No-bid, or sole-source, contracts accounted for $140 billion of the overall $366 billion defense contracting budget in fiscal 2010, the Defense Department said in response to a query. The one-bid contracts totaled $48 billion.
As lawmakers begin to comb through the federal budget looking for ways to slash government spending without harming the military’s combat capabilities, these contracting practices are likely to receive new scrutiny.
“We’ve got to get more effective at everything we do,” said Oklahoma Republican Sen. Tom Coburn. “We have no choice. Half of the discretionary budget’s in the Defense Department, so it’s going to get looked at.”
In response, Pentagon officials acknowledge that their contracting is not as competitive as it should be. But they say they have started to tackle the problem. As part of an effort pushed by Defense Secretary Robert M. Gates, the department has implemented a host of new rules to foster greater competition.
“We will promote real competition,” Pentagon acquisition director Ashton B. Carter told the House and Senate Armed Services committees last September, “for it is the single most powerful tool available to the department to drive productivity.”
But a number of lawmakers say some new laws may be needed, while existing rules simply need to be enforced. When informed of the latest figures, California Republican Howard P. “Buck” McKeon, the new chairman of the House Armed Services Committee, said he would like to hold hearings on the subject this year. “We will be doing strong oversight,” he said. “Nobody wants to waste money.”
The leading Republican on the Senate Armed Services Committee, John McCain of Arizona, also expressed concern.
“I think it’s going to be a big deal,” he said.
The Pentagon became infamous in the 1980s for purchasing $640 toilet seats and $7,600 coffee makers, but today’s stories are more complicated — and more difficult to fix. Government auditors say lack of competition is sometimes the unintended consequence of understandable intentions and at other times the byproduct of laziness or abuse.
In the late 1990s, the Government Accountability Office suggested that Defense officials should track how many contract offerings receive only a single bidder. But it wasn’t until nearly a decade later, in 2008, that the Pentagon amassed statistics on the number of one-bid contracts. Now, officials are trying to better understand the dynamics behind them.
There are several reasons for one-bid competitions, experts said. First, since the end of the Cold War, there are far fewer defense contractors to compete for awards. In what became known in national security circles as “the last supper,” then-Deputy Defense Secretary William J. Perry told the titans of the defense industry at a dinner in 1993 that they would have to consolidate their ranks. And they did, with 59 mostly mid-sized contractors combining, through a series of mergers and acquisitions, to become the five major prime contractors still operating today.
“Now we’re down to the point where we have two contractors in many cases,” said H. Lee Buchanan, a former Pentagon official who attended the dinner.
Within this shrunken pool of contractors, the number of companies that can perform a given task declines further when the job is enormous, such as providing logistics for hundreds of thousands of troops in a far-flung country with scant infrastructure, or when it requires arcane skills, such as constructing a building with secure communications.
Sometimes, one company has such a leg up in terms of the expertise, resources or performance record that others skip the expensive bidding process. “Unless you have a high expectation for probability of success, you don’t make that kind of investment,” said Buchanan, a former chief of acquisition for the Navy.
Making one-bid competitions more likely, critics say, is the Pentagon’s increasingly frequent habit of packaging tasks together into one enormous, multibillion-dollar solicitation that is simply too big for most companies to handle.
For instance, in 2002, the Pentagon awarded a single, $881 million food contract to Sodexo Inc. to feed Marines at all U.S. garrisons, replacing several smaller contracts. The Sodexo deal has since ballooned 36 percent in price to $1.2 billion, drawing concerns from lawmakers such as New Jersey Democratic Reps. Steven R. Rothman and Robert E. Andrews.
Now, the Air Force is planning on launching its own large-scale food service contract at six installations across the country, and Democratic Sens. Patty Murray of Washington and Mark Begich of Alaska have complained to the Air Force that the mammoth deal could exclude local small businesses.
The GAO concluded in an audit published in July that sometimes only one company bids because the government’s description of the job is written too restrictively, often in favor of a particular contractor. Some defense industry experts said they believe this is often done on purpose.
In fact, Pentagon auditors recently found one “competition” where the request for bids on an ongoing project was sent out only to the company currently under contract. Moreover, the work was supposed to start almost immediately upon signing of the deal, a condition that made the incumbent company the only real option. (Story, p. 345)
Government officials told GAO auditors that they had a certain “comfort” level with incumbent contractors. The GAO concluded that in some cases the solicitations were written to favor a current contractor that was performing well or one that was expected to perform well.
“Quite honestly, we get complacent, and contractors get complacent,” said Jeff Parsons, executive director of the Army Contracting Command.
Other observers say the Pentagon is smart to hire huge companies for huge jobs. Kellogg, Brown and Root Inc. provided a wide range of global logistics for the Iraq and Afghanistan wars under the Logistics Civil Augmentation Program contract, known as LOGCAP III, because no one else in the private sector could have done it as well, and it would have been considerably more costly if troops had done it themselves, some analysts said.
Jacques Gansler, a Pentagon acquisition chief during the Clinton administration, said taxpayers are often well served when one very capable contractor is the only one to bid for a deal. The idea is to get the best value, he said, not to hold a competition for its own sake.
“How is that not in the national interest?” he asked.
Still, if only one company bids, the government doesn’t learn whether there’s a better option. And when incumbent contractors know they aren’t really at risk of being ousted, they have little incentive to improve their performance or lower their price, according to Parsons and other experts.
“Given the nation’s fiscal constraints, it is not acceptable to keep an incumbent contractor in place without competition simply because the contractor is doing a good job, or to resist legitimate suggestions that competition be imposed even though it may take longer,” GAO auditors wrote in their July report.
“Human beings tend to have a philosophy that says, ‘As long as things are going okay, I’d rather stick with what I know,’” said David M. Walker, a former GAO director who now heads the Comeback America Initiative, which is focused on fiscal solutions. “But the whole reason you have certain policies and procedures is to be able to look beyond human nature to do what’s in the best interests of all.”
The Pentagon’s Carter has directed the military services to reduce one-bid contracts by 2 percent in fiscal 2011 and to develop plans to bring them down by 10 percent per year thereafter. Carter’s directives “are an acknowledgement that we can do better, and the expectation is that we will do better,” said the Army’s Parsons.
Sometimes, Pentagon officials acknowledge, they get only one offer because they don’t allow industry enough time to respond to solicitations. So, under new guidance issued in November, if only one offer comes in on a solicitation that was open for 30 days, the bidding process has to be reopened.
Carter also found that government oversight of contractors is not what it should be in the case of one-bid awards. In such cases, he has said, program officials commonly don’t negotiate prices, on the assumption that the offer is reasonable because it was submitted with the expectation of competition. Carter has ordered an end to this practice, mandating deeper analyses of these offers.
“They just don’t want us to blindly accept the price,” Parsons said.
There’s another entire class of Pentagon contracts where companies win an initial contest, but then receive billions of dollars in additional task orders without any subsequent competition.
The prototypical case for this phenomenon was the LOGCAP III program in Iraq and other war zones. The deal was awarded competitively to Kellogg, Brown and Root in 2001 to support the U.S. military’s logistical needs for one year, with options to continue the contract and fulfill task orders for a total of nine additional years. The Pentagon has exercised all those options, none of which were opened to competition, and the contract’s total value now stands at $37.8 billion.
Not only have billions of dollars been spent without competition, but the program has been plagued by allegations of fraud, wasted funds and poor oversight of subcontractors. Still, the Army told reporters last year that the company, now called KBR, would have no competition and would get another extension worth $568 million to support U.S. forces in Iraq through the end of this year.
In response to the LOGCAP excesses, Congress in 2008 forced the Pentagon to start opening to competition such deals over a certain value. Carter also wants the services and Defense agencies to more frequently open competition on “services” contracts, which cover deals including systems engineering and food service.
In the meantime, many of the old contracts remain in effect — in some cases for many years to come. There are still dozens of Pentagon services contracts that are renewed year after year for which the incumbent contractor has never had to beat out a rival.
For example, Booz Allen Hamilton Inc. has run for many years the Survivability and Vulnerability Information Analysis Center — or SURVIAC — in Dayton, Ohio. When Booz Allen was awarded in 2003 a renewal of its deal, enabling it to continue in the job for up to another decade, it was the only company to bid. At the time, the Defense Department described it as a $57 million project. But the ultimate value of the deal, which has included a number of additional work orders that were not competed, has reached $1.9 billion to date.
The SURVIAC contract is one of several related umbrella deals to manage the Pentagon’s Information Analysis Centers. The deals were put up for competition at the outset, but they resulted in more than $4 billion in uncompeted delivery orders over more than a decade.
Given all this history, many experts are skeptical that the Pentagon will really be able to change its ways.
“The Defense Department is talking the talk when it comes to improving the contracting system, but to make those efforts successful, it will have to open its doors to more contractors and hold everyone involved in the process accountable,” said Scott H. Amey, general counsel of the Project on Government Oversight, a group that monitors wasteful government spending.
The 1984 Competition in Contracting Act requires the government to put out contracts for a full and open contest, but 38 percent of the Pentagon’s contracts in fiscal 2010 were explicitly awarded without any competition.
The law spells out a long list of exceptions — cases where the requirement can be waived. There can be strong reasons for skipping a bidding contest, such as the urgency of wartime needs or when there is only a single company capable of delivering a specific good or service. Unlike one-bid awards, these exceptions have to be approved at senior levels. Other deals are reserved for minority contractors. There are no requirements at all for subcontracts.
Some of the intentionally non-competitive awards include the Pentagon’s most expensive and large-scale weapons projects. Often, the government decides it would not be cost-effective to have a second manufacturer. In the case of aircraft carriers, for example, only Northrop Grumman Corp. gets the deals.
The most common reason for exemption is that no other source can perform the work — at least without creating more unacceptable costs or delays. But the GAO found that this exemption is frequently invoked because the Pentagon hasn’t managed to procure data rights that would enable follow-on orders to be opened to bids, as in the case of the Army rollers.
By law, data rights belong to the contractor that has spent its own money developing a process, technology or asset. The government can negotiate with the company to buy or lease the rights, but it doesn’t always make financial sense to purchase them. For example, they are needed only when the Pentagon wants to buy more of the same product, as opposed to a brand-new technology.
Veteran observers of the military say that while the Pentagon never automatically bought data rights from contractors, it used to be a more frequent occurrence. But in the administrations of Presidents Bill Clinton and George W. Bush, Pentagon leaders began to de-emphasize procurement of data rights, often because it saved money in the short term.
Those decisions can backfire in the long run, experts said, when the Defense Department wants to get a better deal for spare parts and maintenance work on certain systems, or see if another company could build the same weapon as well or better.
“That’s a false economy,” said Roscoe G. Bartlett, the Maryland Republican who now chairs the House Armed Services Subcommittee on Tactical Air and Land Forces, which oversees Army programs. “What you’re doing is limiting your ability to compete.”
By not buying data rights, the military services restricted their ability to seek other sources to support C-17 transport planes, for example, or to provide better prices on systems such as M-4 carbine assault rifles, congressional auditors and aides have found.
“Some contracting officers described this condition as essentially being ‘stuck’ with a certain contractor,” the GAO reported last July.
Sometimes, buying the rights is simply a question of money. But when troops are in combat, the lack of data can become a life-and-death matter if a single contractor is unable to keep pace with the demand, whether it’s for rollers or for heavily armored Humvees, which were in short supply early in the Iraq War.
“There’s no telling, over the course of my 20 years [in Congress], how often we’ve gotten burned on that,” said Taylor, the former congressman.
The time to buy data rights is when an initial contract is negotiated, experts said, because that’s when the government has the most leverage. Later, the contractors can charge exorbitant prices — and they usually do, sometimes in excess of $1 billion.
Or they can refuse to sell the data at all. That is what happened in the case of the SPARK rollers, when the manufacturer declined to sell the rights, according to the Army. The company declined to comment.
The Army’s Parsons acknowledges that the government had considerable leverage in negotiations with the contractor over data rights, before the deal was signed and when much of the scores of millions of dollars spent on rollers were still up for grabs.
But he says the Army was under pressure, too, to get the SPARK system, considered the best around, to the field as soon as possible. “You can say, ‘If you don’t do this, we’re not going to buy it,’ but at the same time, we have soldiers over there we need to protect,” Parsons says.
Col. Steven F. Cummings, who is in charge of the Army office that oversees the program, does not believe that the Army necessarily would have met its requirement for rollers in Afghanistan by now if it had managed to buy the data rights and hire a second manufacturer. Between qualifying the new company, testing its product and training troops to use it, the Army might still be behind, he says.
And he says Pearson is moving rapidly to complete the order. In addition to the 700 in Afghanistan, another 700 have been built and are in stages of transit, leaving 600 yet to be built to meet current requirements, he says.
Congressional critics still maintain that a second supplier could have solved the problem. Taylor and others even cosponsored legislation in 2010 requiring the Army either to buy the data rights from Pearson or buy another roller, such as one used by the Marine Corps, which Army officials consider inferior.
“We want them to almost always buy the data rights, even if you think it’s your first and only buy,” Bartlett says.
Going forward, the Army is trying to reverse its pattern and obtain data rights on other new programs. The only recent vehicle for which the Army purchased the data rights was the Family of Medium Tactical Vehicles program, a series of 2.5-ton to 5-ton trucks. The program had been sole-sourced to BAE Systems Inc. until the Army bought the data and opened it to competition. When it did so, Oshkosh Corp. of Wisconsin won and was able to perform the work at a savings of $1.2 billion, Parsons said.
Now Oshkosh is being asked to sell its technical data for the Family of Heavy Tactical Vehicles, a set of trucks that can carry loads as large as a 70-ton tank. The Marine Corps, too, has told Oshkosh it would like access to the data on its Medium Tactical Vehicle Replacement initiative. But Oshkosh, which benefited from competition in the case of the 5-ton trucks, is wary of giving up its territory on the newer programs.
“Competition for these and other DoD programs we currently have could result in future contracts being awarded to another manufacturer, or the contracts being awarded to us at a lower price and operating margins than the current contract,” the company warned in an October filing with the Securities and Exchange Commission. Oshkosh declined to comment for this article.
Congress has taken some steps in the past several years to force the Pentagon to deal with the data issue. It has required the Defense Department to develop strategies for acquiring data rights and for maintaining ongoing competition when Defense officials draw up program plans.
At the Pentagon, Carter has also responded. As of last November, officials are required to present an analysis of how the data rights will be secured before programs enter full-scale development.
The action is past due, some lawmakers said. “We have to do a hell of a lot better,” says Taylor.
Of course, the Pentagon has a long history of unfulfilled promises of procurement overhauls. Already this year, a promise to bring competition to one of the most expensive wartime contracts has fallen through.