WEAPONS AND WASTE: THOSE HORROR STORIES EXPLAINED: `IT’S THE SYSTEM’
By TERRY MCDERMOTTTIMES STAFF REPORTER
July 14, 1985 Publication: THE SEATTLE TIMES
WASHINGTON _ Planners at Strategic Air Command headquarters in Omaha, Neb., began contemplating replacement of the noisy, inefficient engines on their KC-135 Stratotanker fleet in the early 1960s. In 1967, they wrote a formal proposal and sent it off to their bosses at the Pentagon
It was not until last July that the first airplane with new engines came off the line at Boeing Military Airplane Co. in Wichita, Kan. They have continued to roll out at the rate of three a month since. At that pace, the last of the 642 tankers in the Air Force fleet will get its new engines in April of the year 2002, when the brand-new engines would be installed on airplanes nearly fifty years old.
In the meantime, the initial $13.6 million contract has grown to a $1.3 billion program and is on its way to $8 billion. Still, the tanker modification program is regarded as a procurement success.
The contract growth was anticipated and the program is, by nearly everyone’s reckoning, one of the good ones. It is, they all agree, on budget and on time.
“This is a helluva deal for the national defense,” says Allen Hobbs, a spokesman for Boeing in Wichita, the prime contractor for the re-engining program. “Every taxpayer ought to be jumping up and down over this.”
Some of them are.
Boeing’s problem is that people aren’t jumping for joy, they’re jumping up and down mad. Chances are if anyone out there has ever heard of the KC-135 modernization program, they’ve heard of it for one reason only _ a pair of duck-billed pliers Boeing sold to the Air Force for $748.
When Ronald Reagan flew into office on the wings of campaign promises to re-arm America, Pentagon inhabitants were excited. When he began carrying out those promises with a proposed $1.5 trillion spending spree, they were in paradise.
Now, however, there is trouble in paradise and most of the trouble has to do with the Defense Department’s procurement system. Day after day, week after week, come new reports of waste, fraud and abuse, of some apparently outrageous item the military has purchased. It’s a $600 toilet seat, then a $7,400 coffee pot; first a $748 pliers, then money for a defense industry executive’s dog kennel.
The incidents of abuse have been revealed with such regularity that they have acquired a name: The Horror Stories.
Those who operate inside the procurement system seldom attempt to explain The Horror Stories. Boeing officers, for instance, refused repeated requests for interviews for these articles. When others are questioned about The Horror Stories, the response offered over and over _ as an answer, as an excuse, as justification, as an all-encompassing end to every argument _ is:
“It’s the system.”
The system is forbidding in both size and complexity. The Federal Acquisition Regulations, the basic interpretations of law governing the procurement system, are 3,784 pages long and growing.
The FAR is only the basic law. There are more than 27,000 pages of supplements. There is a basic FAR supplement, a Navy supplement, an Army supplement and an Air Force supplement. There are also the Defense Acquisition Regulations, called the DAR, which the FAR replaced last year, but which still apply to contracts signed when the DAR were in force. There is a set of Cost Accounting Standards. There are thousands of pages of case law. There are laws to govern allotment of contracts to minority and women-owned businesses, to insure that small businesses get their share.
There are, estimates Navy Secretary John Lehman, enough regulations to fill a library shelf 1,152 feet long.
Much of the recent attention on the acquisition system has focused on defense contractors, but most of what happens within the system occurs before the contractors are ever formally involved, before a mill ever touches metal to make those $748 pliers. The regulations are only one aspect of the complexity. There is also the mind-numbing bureacracy of the Department of Defense through which a weapon must pass before it moves from wishful thinking to reality.
Edward Luttwak, a researcher at the Georgetown University Center for International and Strategic Studies, calculated in 1983 that there were then four times the ratio of senior officers to enlisted men and women as there were at the end of World War II. Luttwak complains that it isn’t so bad that we have all these officers on the payroll. The real problem, he says, is that they insist on doing things and everything they do contributes to the bureaucratic maze and subsequent paralysis.
The KC-135 Stratotanker program is just one example of how the system works. What happened between that initial notion 20 years ago to replace the airplane’s engines and the actual accomplishment of the work illustrates the complexity of military procurement.
Although Boeing, for the record, will say only that the company’s lobbying in Washington is limited to providing information and answering questions, one Boeing spokesman said of the KC-135 modification program: “We had to do a lot of selling to get it in there.”
“There” being the federal budget.
Congressional sources say Boeing, like many defense contractors, concentrates its sales efforts not so much on members of Congress and their staffs, but on the Pentagon. But Congress is not ignored. Defense contractors, in fact, have doubled their political contributions during the years of the Reagan build-up. Members of the House and Senate Defense Appropriations subcommittees and the Armed Services committees have been the biggest recipients of the increased contributions.
Rep. Norm Dicks, D-Bremerton, who sits on the House Defense Appropriations subcommittee, is the only member of the Washington delegation on a defense-related committee. On the evening of the day Dicks’ subcommittee was putting the final touches on a 1986 defense spending bill, Dicks held a campaign fundraiser at a Capitol Hill restaurant. Defense industry lobbyists made up a large share of the $250-a-plate crowd.
Many of the lobbyists represented companies with no interests in Washington state, but with great interest in defense spending.
Dicks says, as do most members of Congress, that financial contributions from the lobby are made more to buy access than to influence specific votes. He says lobbyists make him aware of their desires, but that his decisions are based on merit. In any event, his campaign fund made about $25,000 on the in-session fundraiser, much of it from defense contractors.
But a congressional decision to fund a program is nearer the end of the procurement process than the beginning, and much defense lobbying is directed at the Pentagon where the early, and some say most important, decisions are made. The Pentagon, which has its own lobbyists, then helps sell the program to Congress. This is especially true for a proposal as mundane as the tanker program, about which few members of Congress expressed any interest.
Boeing was very interested, though, for good and profitable reason.
The Air Force eventually intends to spend $8.5 billion on the modernization of the tankers, making the program the largest government contract in the history of Boeing _ which annually is one of the top 10 defense contractors. Last year the company ranked sixth with $4.7 billion under contract.
The KC-135 is one of the oldest models in the Air Force inventory. It is a modified Boeing 707 and was built by Boeing at its Renton plant in the 1950s and 60s. The Air Force bought 700 of them for $3.6 million apiece and uses the 642 still in service as flying gas stations, the military’s basic in-flight re-fueling vehicle. The plane has been an able and reliable performer since entering service, but has been hampered by inefficient, underpowered engines.
“Nobody had any real problems with the airplane itself,” says Maj. Dave McNamie, a spokesman for the Strategic Air Command, the “user service” for the tankers. “The problem came from the Fifties engines. Re-engining looked like a pretty reasonable thing to do without going out and getting a new airplane.’
The problem, as SAC saw it, was that in addition to being noisy and smokey, the original KC-135 could not match increasing refueling needs. With modern, more powerful engines, the planes would both carry more fuel and burn less, simultaneously saving money and increasing re-fueling capability. The less fuel the planes burned, the more would be available to refuel other planes, meaning that fewer tankers could do more, meaning further that fewer tankers would be needed.
Need, in this case, is not a casual notion. It is formally defined and is step one in the procurement process. Before you buy something, you have to establish a need for it. One of the main elements in establishing need is the service’s definition of mission.
Mission in turn is based on threat.
It works this way. The basic mission of the Defense Department is to defend the United States and its interests. Leaving aside the difficult and controversial problem of how American interests are defined, the defense of those interests depends to great extent on the perceived threat to them. In the case of SAC, the threat stems primarily from the perceived war-making capacities and intent of the Soviet Union.
Some critics of the procurement process say it begins to be flawed at this basic level. They say the threat is distorted, “enlarged,” in order to justify increased definition of mission, hence need, hence weaponry. Rep. Denny Smith, R-Ore., co-chairman of the congressional Military Reform Caucus, calls this enlargement of the threat “blowing up the Bear.”
“The Bear (the Soviet Union) always gets bigger at budget time,” he says.
Dicks, who is also a member of the Reform Caucus, says one fundamental flaw in in the congressional handling of defense is the little time devoted to consideration of these large issues, such as definition of threat.
“We spend months and months debating things like how many missiles to buy, but I don’t think we spend 15 minutes debating the concept of the 600-ship Navy. We just went ahead and approved it,” Dicks said.
SAC had a difficult time getting approval for its plan to put new engines on the tankers. The idea languished for more than a decade between the proposal to the Pentagon and its insertion into the budget.
It was not that the Pentagon planners disagreed with SAC on the need for increased tanker capacity. They agreed that there was a growing tanker need, but mainly to service SAC’s intra-service rivals, the Tactical and Military Airlift commands (TAC and MAC; TAC has mainly fighter aircraft, MAC has mainly cargo aircraft). SAC’s fleet of B-52 bombers was scheduled to be replaced by the new B-1, which, among other presumed advantages, would be more fuel-efficient, thus negating SAC’s need for new tankers.
Rather than modernize the KC-135, the Pentagon proposed to Congress in 1975 an ambitious program to buy new tankers. But that proved too expensive, and when the B-1 was cancelled by Jimmy Carter, SAC got neither the new bombers nor the new tankers.
With the B-1 cancelled, SAC again needed increased tanker capacity and eventually the modification of the KC-135s was approved both by the Pentagon and the Congress. But by the time the full KC-135 fleet is modernized, the B-1B (the resurrected version of the B-1 bomber) will have replaced the B-52. As General Accounting Office auditors have pointed out, by the time SAC gets them, the original need for the modernized KC-135s will have disappeared. And SAC, rather than getting neither, will get both the more fuel-efficient bombers and the improved tankers.
The procurement system is filled with such incongruities, many of them the result of conflicting goals at the base of the system. The most elementary of these conflicts is between the desire to save money and the desire to save the country. “Do you want to save mere dollars and thereby risk lives?” defense critics are asked. That is the basic argument the Reagan administration has made throughout the past four years when it has allocated $1.1 trillion for defense.
That, too, is the argument Congress has bought. Many members of the defense establishment criticize congressional interference.
But whatever else may be said of the congressional role in defense policy, it cannot be said that the Congress has been stingy.
Ernest Fitzgerald, the Pentagon auditor who gained national fame in the 1960s by uncovering the huge cost overruns on the Lockheed C-5 contract, has since become one of the harshest Pentagon critics.
But he finds equal fault with Congress.
“The Congress has the power to hold these people accountable.
None of the horror stories have caused business problems for the Pentagon. They’ve had plenty of money to cover their problems,” he says. Until the money is stopped, reform attempts will do nothing but “nip around the fringes.”
Advocates of decreased defense spending argue that much of the money in the budget is there because members of Congress protect the programs in their districts regardless of the merits. Ted Stevens, R-Alaska, says because of this desire to protect home-state programs, Congress has turned the defense bill into a gigantic jobs bill.
This year, though, The Horror Stories have found a congressional audience. Reagan administration officials complain that mismanagement of the Pentagon accounts has undercut the national consensus for their defense build-up.
Even such stalwarts of increased defense spending as Sen. Barry Goldwater, R-Ariz., have called the Pentagon to task. Increasingly, hawkish conservatives are joining liberals in the fight against increased defense spending, and Congress this year for the first time since Reagan came to office is making substantial cuts in Reagan’s defense proposals.
Oregon’s Smith, a former Vietnam fighter pilot, came to Congress a Reagan loyalist and staunch believer in the need for a stronger national defense. Today he is co-chairman of the Military Reform Caucus, a bi-partisan, mixed-ideology group that has been a persistent Pentagon and administration critic.
Says Smith: “Reagan’s original budget this year had 18,500 more civilian employees in it for the Pentagon. That’s not improving national defense. That’s a high-paid job corps.”
Sen. Charles Grassley of Iowa, another conservative Republican, compares the Defense budget to a balloon that, when squeezed in one place, simply expands in another.
In 1979, the balloon expanded in the direction of the KC-135 with that $13.6 million “firm fixed price” contract award to Boeing to study new engines. That contract, still in effect, has since expanded to more than $300 million and has been joined by four others totaling $1.3 billion.
“We delivered an airplane when we said we would at the cost we said we would,” says Mike Sly, the Air Force program manager who has shepherded the program through the research, engineering and initial production stages and a man who thinks the new tankers make this a safer country to live in. “We got what amounts to a new weapons system.”
And yet, Sly says, all anybody wants to talk about are the pliers. He can’t imagine why.
WEAPONS AND WASTE – WHY BOEING’S PLIERS COST $748 – ABSENCE OF TRUE COMPETITION THE REAL CAUSE
By TERRY MCDERMOTTTIMES STAFF REPORTER July 15, 1985 Publication: THE SEATTLE TIMES Page: A1 Word Count: 4350
DAYTON, Ohio _ When the Pentagon and Congress approved modernization of the Air Force’s KC-135 Stratotanker fleet, both the idea and the money to pay for it were handed to the Aeronautics Systems Division here at Wright Patterson Air Force Base
ASD, a division of the Air Force Systems Command, soon selected the Boeing Military Airplane Co. as the prime contractor.
ASD and Boeing signed a $13.6 million, fixed-price research-and-development contract Dec. 14, 1979. Almost five years, $300 million and 200 contract modifications later, an airplane was delivered, on time and on budget, as both Boeing and the Air Force like to say. In the meantime, Boeing had engaged 120 subcontractors, purchased or produced 6,000 parts from as far away as France, replaced 34 major subsystems, earned a profit of somewhere around $40 million _ including a $350,000 bonus for innovative management. But the contract gained fame recently because Boeing had charged the government $748 each for two pairs of duck-billed pliers.
That price for the pliers is not as bad as it could have been.
At one point, Boeing wanted $1,296 for each of the pliers. Before that, the price had been $2,592. And before that, $4,897.
While Boeing was fiddling with those prices, the cost of the pliers listed in the catalog of their maufacturer, Channellock Inc. of Meadville, Pa., never varied. It was $5.44.
Numerous explanations have been offered as to how a simple tool could conceivably cost as much as those pliers. But critics of the military procurement system say the pliers are only a symptom. The problem, they say, is the system itself. The major flaw, out of which many others have grown, is the absence of competition.
Prices such as that Boeing charged for the pliers “give the word `prime’ a whole new meaning,” says John Shultz, a procurement veteran who works for the Air Force and who thinks the price grew out of a lack of competition.
“If we could compete everything, we wouldn’t have to worry about price,” he says.
Shultz works in a newly created position known as a competition advocate. It is his task to review items the Air Force purchases from one source and determine if there is a way to open the procurement up to other, competing suppliers.
He has his work cut out for him. He is busily screening items in the inventory at the Air Logistics Center in Oklahoma City, and doesn’t expect to get around to the KC-135 until 1986.
“And it’ll probably all come down proprietary anyway,” he says, meaning most of the 6,000 items in the KC-135 modification kit won’t be eligible for competition because Boeing or one of Boeing’s subcontractors owns the design.
Less than 10 percent of all Department of Defense purchases are through sealed, competitive bids. In the case of the $8.5 billion Air Force program to install new engines and otherwise update 642 Air Force tankers, there was never any question about competition for the major portion of the program.
“We knew Boeing would be the prime,” Mike Sly, ASD’s program manager for the tankers, says of the selection of Boeing to perform the work. “They were the only ones with access to the relevant data.”
The relevant data were those describing the manufacture of the KC-135s, which were built at Boeing’s Renton plant in the 1950s and 1960s.
Data ownership is a major issue in the procurement world. It is normal for defense contractors to retain ownership of the technical design data for the products they sell to the government. The thinking is that the companies would be revealing too much about themselves to their competitors if the data became public and the designers would in effect forfeit the investment they put into the designs.
Behind the logic is a motive _ money. Those in the defense business are fond of saying that Gillette did not get rich selling razors, he got rich selling razor blades. Similarly, data ownership means money because of the lucrative spare-parts business. Weapons wear out. They require repairs, replacement and overhaul, sometimes with frightening frequency. The selling of spare parts over the life of a weapon will often earn the contractor more money than the original sale.
You only buy an airplane once, but as Shultz says, “The repairs go on forever.”
With the amazingly durable airframe of the KC-135, forever might not be a bad estimate. The airplanes are military variations of the Boeing 707, altered to allow them to carry 31,000 gallons of fuel in the wing tanks and lower fuselage. The planes have in effect been made into huge, flying gas stations and have served faithfully as the nation’s primary in-flight refueling aircraft since they began entering Air Force service in the late 1950s.
The 707 was one of Boeing’s best airplanes. Structural tests indicate the KC-135 airframe will be sound beyond the year 2020. Boeing originally sold the planes to the U.S. for $3.6 million each. The modernization is costing $21.8 million per plane.
Gillette would have been proud.
Contractors have zealously protected their ownership of design or proprietary data, as it is called, and this is not limited to the defense industry. Airlines have howled for years that commercial aircraft manufacturers charge exorbitant prices for spare parts that the manufacturers classify as proprietary.
After a lengthy investigation ending in 1984, the Federal Trade Commission staff alleged that the Boeing Commercial Airplane Co. “forces airlines to buy spares only from Boeing at prices on average 20 percent higher” than they would cost in the marketplace.
Boeing, the staff investigators wrote in documents obtained through the Freedom of Information Act, “attempts to maintain monopoly, just like its government business.”
Defense contractors, like all other businesses, are in business to make as much money as they are able.
“There’s a lot of truth to the fact that he’ll charge you what he can,” says Mike Sly.
Studies, such as one conducted by the General Accounting Office in 1983, consistently conclude that lack of competition leads to over-pricing. In that GAO study, the Air Force was found to be routinely paying 50 percent more for proprietary items than the items cost in the commercial market.
A variety of solutions have been proposed, such as the attempt within the military to “break out” for separate bidding individual items within sole-source contracts. All aircraft engines are now “broken out” and contracts to buy them are let independently of the rest of the airplane. In the case of the KC-135, CFM International, a consortium of General Electric and a French manufacturer, won the competition to supply the new engines for the Stratotankers. The engine, called the CFM-5 6, is an off-the-shelf commercial turbofan engine also used on some DC-8s.
Congress has made repeated attempts to increase competition, specifying when competition must occur and specifying in detail rules to be followed when it does not. Congress is now considering a measure called the creeping-capitalism bill, which would require more and more contracts to be let competitively each year.
The services say they, too, want more competition, but say there are basic, unchangeable aspects of military procurement that make competition for many major weapons unworkable. Most weapons are simply not bought in sufficient quantities to justify establishing secondary suppliers _ dual sourcing as it is called.
To substitute for the competition, Congress and the military over time have instituted the labyrinthine system of rules, standards, laws and negotiation guidelines that are supposed to be applied to monopoly contracts to ensure that the government gets a good price.
Clearly, this system sometimes breaks down. No one disputes that. The question is how often. Is the example of the pliers isolated or is it endemic?
As with nearly everything else in the procurement world, the answer is shrouded in the complexity of the system and defense critics and defenders read different results when they peer through the fog.
But there is a growing body of independent analysis _ by Congress, by both liberal and conservative think tanks, by lobby groups and consultants _ that shows on a case-by-case basis that nearly every defense procurement contract could be improved with accumulated great savings.
“Our audits show everything we buy tends to be overpriced,” says Ernest Fitzgerald, formerly an Air Force auditor, now a financial-management officer in the Pentagon.
Contractors say if that is so, it is because of the government rules, not in spite of them. They blame the cumbersome system for what they regard as occasional breakdowns. You cannot use the same system to buy pliers that you use to buy an aircraft carrier and expect even results, they say.
Boeing officers repeatedly refused to be interviewed for these stories, but in other forums they have called the pliers and other horror stories problems of perception, not fact.
Despite a crackdown ordered from on high in the Defense Department, many high-ranking policy makers in the Pentagon share the contractors’ view.
One of these officials, who would be interviewed only on the condition that he not be named, says neither the public nor the politicians understand what it is the military is buying.
“Most of the time, we are purchasing something that is pushing the state of the art, things that don’t exist. This means that what we want is not available through normal commercial purchase,” he says.
An Air Force contract analyst says: “We buy five million actions a year and some of them are just dumb, but the number of times criminal activities are involved is slim to none.”
But there are others within the Department of Defense who see such prices as far more than aberrations.
“Blindly pick a contract. You’ll find rotten stuff in it. It’s a gravy train,” says one department auditor.
This auditor disputes Boeing’s contention that the price of the pliers was inflated solely by an accounting quirk whereby each item in a contract carries an equal amount of overhead costs, regardless of the true value of the item.
The company’s cost breakdowns of the pliers’ final price allocate $80 to the actual purchase of the tool from CFMI, the engine manufacturer. The remaining $668 is scattered in different overhead accounts.
Sly, the man who bought the pliers for the Air Force, says: “We paid $80 for the pliers. All the rest of it is for the paper. The paper is not for the Air Force. It’s to satisfy the public … $748 might be their true cost.”
But internal Boeing documents obtained by The Times indicate that at least in the beginning Boeing misstated the actual purchase price of the pliers in its negotiations with the Air Force. When Boeing wanted to collect $2,548 for the pliers, they stated the cost of purchasing them was $1,239.50, the remaining costs attributed to labor and overhead charges. But, the company, according to its later price proposals, only paid the CFMI catalog price of $80.
“That isn’t overhead, that’s fraud,” says the Defense Department auditor.
Critics say the huge infusion of money into the Department of Defense has bloated it to, and occasionally beyond, the bursting point, making it impossible to monitor spending and making overpriced items inevitable. Even Boeing officers have reluctantly admitted in recent speeches the company has made occasional mistakes.
Frank Shrontz, Boeing president, told a symposium here: “Laws have been violated and mistakes have been made. We _ and I mean both our industry in general and my company in particular _ have done some dumb things.”
Critics say overpricing runs throughout the system. In addition to increasing the cost to the taxpayer, they say it decreases military capability. A study by the Congressional Budget Office concludes that despite spending $1.1 trillion in the years 1982-85: “Except for Navy ships, increases in the number of U.S. forces have been relatively modest through 1985.
“Purchases of new, modern equipment continued at a high level, but the number of weapons purchased in 1982-1985 was not always significantly greater, despite much higher procurement funding, than the number purchased in 1977-1980. This reflects changes in the mix of weapons _ weapons of greater sophistication and higher cost were often purchased instead of cheaper ones _ and unanticipated growth in unit costs of weapons since 1980.
“A significant share of the increase in procurement funding authorized since 1980 also went to fund unanticipated higher prices, not increased quantities or quality of equipment.”
As examples of this, the budget staff notes that the number of missiles purchased increased six percent while the amount of money nearly doubled; the number of airplanes purchased increased nine percent while the budget for buying them increased 75 percent.
People who are surprised by these relatively modest increases in things purchased have ignored a fundamental aspect of the procurement system, says Fitzgerald _ the primary products of the defense industry are not weapons, but costs. He says the entire system is designed to account for where the money went, not what it purchased.
Even the method by which most contractors are paid _ called progress payments _ is based not on the delivery of goods but the certification of costs.
“Executing the progam does not mean meeting the contract, it means getting rid of the money,” he says.
In fact, some contract officers refer to program execution as “spending the contract.”
In the end, the military winds up buying fewer weapons than they thought they were going to buy. In effect, they don’t order “X” number of airplanes, they order “X” dollars worth of planes. If the planes end up costing 10 times more than anticipated, they simply buy one-tenth as many of them. Or they go get some more money.
Critics say the Department of Defense, in its yearning for accountability, has created a cost-only culture, one in which documenting costs becomes a fulltime task. Producing weapons is secondary and the relationship between costs and goods is not as important as the documentation of the costs.
So the system routinely produces $748 pliers that are, as Paul Hoven of the watchdog Project on Military Procurement says, are “legal as hell.”
PURCHASING SYSTEM HAS CHANGED
The United States has not always bought weapons the way it buys them now. As recently as World War II, the procurement process was relatively simple. The individual services either produced what they needed in their own arsenals or called on American industry to build weapons that industry thought would work.
After the war, the individual services were joined into the Department of Defense and after the Korean War a consensus was reached in the Congress and the executive to maintain large standing armies in peacetime. This was simply a reflection of the nation’s changed view of its role in the world, but it had the effect of changing the role of American military forces, and the growth of the Pentagon bureaucracy has marched forward.
Because standing armies need arms and because today’s more complex weapons take much longer to produce, the defense industry has marched right along with the Pentagon and grown into a permanent, fulltime complement to the military services.
Herbert York, former director of Lawrence Livermore Laboratory in California, said, “Weapons design has entered the Baroque period: It does little, costs a lot and keeps a lot of people busy.”
HOW COMMON THINGS GET THOSE FANCY PRICES
A coffee pot is not necessarily a coffee pot when the Department of Defense buys it.
So say Pentagon officials when they discuss the $7,400 coffee maker auditors found the Air Force had ordered.
“Middle America thinks we’re talking about Mr. Coffee,” complains one contracting officer. “That coffee pot had 2,000 parts.”
The larger question, of course, is why anybody thought such a coffee pot was necessary. But the point about things not being what they seem is one repeated frequently when contractors or Department of Defense officials discuss the recent Horror Stories. A coffee pot is not a coffee pot and a 4-cent diode is not just a diode.
They say the same about the duckbilled pliers for which the Air Force paid Boeing $748 as part of the KC-135 Stratotanker modernization program. These were special pliers, they say, for a specialized task _ inserting a critical pin into the CFM-56 engine.
To go where it goes in the engine, the metal pin must first be shrunk. To accomplish this, it is dipped into a super-cooled cryogenic liquid, which makes the metal contract temporarily. The pliers must hold the pin when it is dipped in the liquid. To make sure the liquid does not freeze and thus crack the pliers, the pliers must receive a protective coating. To hold the pin, a notch is machined into the face of the pliers.
“You can’t buy these pliers at a hardware store,” says Allan Hobbs, a Boeing spokesman.
Maybe not, but you can buy something very much like them at K-Mart, says James Stimpson, vice president of Channellock, Inc., the Pennsylvania manufacturer of the pliers. Channellock was not happy to see their $5.44 pliers on the front page of the nation’s newspapers next to a $748 price tag.
The company had no idea they were doing defense work or selling their pliers for so much money. They weren’t. All of Channellock’s tools are sold to wholesale distributors and the company doesn’t know which distributor sold two of them to CFMI, the engine manufacturer, who in turn sold them to Boeing for $80.
Boeing modified the pliers, tacked on $668 in engineering, labor, overhead costs and profits, boosting the pliers total government price to $748. This allocation of so much overhead to such a small item seems quirky, but is standard in defense contracting. It was, in fact, introduced as a means to save money by making the accounting simpler.
Rather than figure the true overhead cost for each item in an order, the contractor simply takes the negotiated total overhead cost and allocates an equal share of it to each item regardless of the item price.
A $1 million engine can bear the same load of overhead as the $80 pliers. For example, if a contract for the sale of 20 items includes $100,000 of overhead each item gets $5,000 of overhead regardless of the item price.
Even with that explanation, Channellock officials were still bothered by the $80 “true cost” of the hardware. Hardware is their business and $80 seemed a lot to pay for a pair of duckbilled pliers no matter how it was modified. So they tried to duplicate the modifications and figure out how much it would cost.
The result?
Machining the extra notch to hold the pin cost a dollar, the black oxide paint a dime. Total cost of the pliers: $6.54. How you get from there to $80 is unfathomable, Stimpson says, especially when the Air Force says nothing illegal occurred.
“Fraudulent intent you can understand, stupidity you can’t,” he says.
Boeing would not comment on the basis for the price. Other, similarly priced items are littered throughout the Stratotanker contract. Another package of support equipment included four sets of eight simple box-end wrenches that Boeing manufactured and sold to the Air Force for $17,294 per set. It also included a small device to remove washers that Boeing bought from CFMI for $353 and sold to the Air Force for $920.
It was only because the pliers happened to be noticed by an auditor and subsequently received so much publicity that Boeing cut their price. The wrenches, for example, sailed right on through at full price.
Air Force contract managers say that in a complex program like the tanker modernization, small item prices can be ignored while negotiators concentrate on the bigger items. They point out that the 62 separate volumes of contract documents fill a room.
“Negotiations are based on the bottom line cost. It’s impossible to negotiate a price on each part. We’d still be at it,” says Doug Pangborn, a contract officer who negotiated a later KC-135 contract.
The basic contract is an inch-thick blur of government acronyms. The foot-high stack of 200 modifications made after the contract was signed dwarf the contract itself. Then there are four other contracts for the same program, each with its own set of modifications.
Buried within them is enough complexity to confuse nearly anyone, including the people who prepared them. One of the contract changes, for example, was required to correct a $252,837 clerical error. In another startling modification, the government announced that one contract was immediately terminated. This was followed by a telegram reinstating the contract, with no reason given for either.
IDEAS, MONEY PRIME ITEMS AT `BICYCLE SHOP’
This spring, the Air Force invited a group of science-fiction writers to Wright Patterson Air Force Base to talk about war and how to wage it.
A week later, the American Society of Military Comptrollers came to town to talk about how to pay for it.
In these days, when the President of the United States endorses such notions as death rays in outer space, the fantasists are flying high. The comptrollers, on the other hand, are not faring so well in this, the era of waste, fraud and abuse. As evidence of their current state of mind, the comptrollers included on their annual meeting agenda a seminar on self-assertiveness.
The writers and accountants represent the two major sources of raw materials for the weapons-procurement process _ ideas and money.
The Aeronautics Systems Division here _ sometimes called the bicycle shop, a reference to the Dayton shop where the Wright brothers designed the first airplane _ is the place the two are supposed to be welded together into things that fly. The Systems Command, of which ASD is part, is the primary research-and-development agency for the U.S. Air Force. Money and ideas go in one end and airplanes are supposed to come out the other.
Money lately has been plentiful. There sometimes seems to be more of it than there are things to spend it on. One of the criticisms leveled at President Reagan’s multi-billion dollar requests for his Strategic Defense Initiative (called “Star Wars” by everyone outside the administration) came from those who wondered if so much money could be spent so quickly. Lt. Gen. James Abrahamson, the director of the program, has assured Congress these fears are unfounded. He will spend every penny he gets, he says.
The Systems Command has lots of ideas. It is, according to one immodest publicity brochure, “a furnace blown white-hot by the bellows of bold ideas _ ideas once thought impossible that have been brought to reality by AFSC’s research, development test, evaluation and acquisition communities.”
The command is getting its share of the money, too. With slightly more than 6 percent of the Air Force’s employees, it spends more than a third of the annual Air Force budget. In the Reagan years, the command’s budget has grown to $38.5 billion, which would rank seventh on the Fortune 500, right behind IBM and ahead of such giants as General Electric and Standard Oil.
American weapons designers here and elsewhere have designed and built some horrifying things, some of the best and most destructive weapons in history. A sampling of their work is on display at the Air Force Museum adjacent to ASD headquarters. There is a facsimile of the “Little Boy” bomb that leveled Hiroshima. There is also the A-10 Thunderbolt close-ground-support fighter aircraft, a plane literally built around a gun, the Gau-8 cannon. The Gau-8 shoots 30 millimeter shells that will pierce three-inch steel and delivers the shells at an astonishing 70 rounds per second.
But the designers have also come up with some real duds, falling victim to their preferences for the complex and exotic when the simple would work just fine. Edward Luttwak, a defense specialist at the Georgetown Center for International Studies, wrote:
“When the Systems Command has a chance to design from scratch, it faithfully reproduces its own image: the grossly overelaborate structure yields equally overelaborate products.”
Designers have made missiles whose only real use turned out to be as target drones. They have built airplanes whose wings fall off.
As landing gear for the B-36 bomber _ itself a monstrous post-World War II concoction that in some variations had six turboprop and two jet engines _ they designed an immense single-wheel front gear.
The tire was nine feet, two inches high and three feet wide and it worked just fine. The only problem with it was it concentrated so much pressure on one spot that the typical concrete runway collapsed beneath it.
The U.S. Navy developed an anti-radar missile in the 1970s that worked well but by the time they got done with improvements and modifications, it cost too much to buy. The missiles were intended to be mounted on Navy aircraft and, if used in large numbers, be able to knock out enemy radar. But by the time the missiles were built, they cost more than $1 million apiece, too costly to be used in numbers sufficient to do the job they were intended for.
One congressional aide complains that designers get so carried away with sophistication they forget what they’re trying to do:
“Then they build things that don’t work. They couldn’t shoot down a ’57 Chevy sitting in the middle of a vacant lot.”
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WEAPONS AND WASTE – IT’S BEST, WORST OF TIMES FOR DEFENSE CONTRACTORS
By TERRY MCDERMOTTTIMES STAFF REPORTER July 16, 1985 Publication: THE SEATTLE TIMES Page: A1 Word Count: 3879
WICHITA, Kan. _ There’s a joke.
Three salesmen are at lunch. The first says,“ I’ll buy lunch.
I can deduct it, and because I’m in the 50 percent tax bracket, it will only end up costing half as much.”
The second salesman says, “No, let me pay for it. I can put it on my expense account and it won’t cost us anything.”
But the third salesman says, “Let me pay for it. I’m a defense contractor and I can make a profit on it.”
For defense contractors, these are both the best and the worst of times. Never have they had so much business, so much profit and so much abuse all at once. It has gotten to the point that some contractors are actually turning down business.
The Boeing Military Airplane Co. here is one of them. Boeing does not want repeats of its Horror Stories _ $1,000 plastic stool caps or $748 pliers _ and the company now refuses to bid on these non-complex spare parts and tools, despite the fact that it is guaranteed a profit on them.
They also are guaranteed a public flogging, and the company has had enough of that lately. And Boeing can still make money.
In the past three years, Boeing Military has been a money machine for the Boeing Co., of which it is a subsidiary. While revenues and profits from its commercial operations have fluctuated, the company’s military and other government business has grown steadily to the point where profits from Boeing’s government business dwarf profits from the rest of the company.
Boeing officers refused to be interviewed or even answer written questions regarding the company’s military business, but in 1984, according to the company’s annual report, government business was 20 times more profitable than commerical operations. It represented about 42 percent of total revenues, but brought in 84 percent _ $477 million _ of the company’s total profit.
An additional advantage contractors derive from government business is the opportunity to defer taxes on much of it because taxes don’t have to be paid until contracts are completed. Boeing, for example, has not yet had to pay taxes on the money it has earned from the KC-135 modernization program. This is one of the side effects of stretching out and modifying contracts, as has been done with the initial KC-135 contract, which has grown from $13 million to more than $300 million and is still in effect. So, while the company receives monthly payments from the government for work on the program, it does not have to pay taxes on those payments until the contract is closed _ whenever that might be.
In sum, Boeing has paid no federal income taxes since at least 1981.
Many defense contractors have prospered in the Reagan buildup.
With $1.1 trillion pumped into the Defense Department in the past four years, it had to end up somewhere, and many contractors are reporting record profits.
The companies say they earn every penny they get.
“We are not rip-off artists,” says Allen Hobbs, a spokesman for Boeing Military. “This is a very patriotic company, and we hold that to our bosom.”
Hobbs says his company has plowed much of its earnings back into its Wichita plant, which at 8.5 million square feet under roof is thought to be the largest single aerospace plant in the world. In the seven years since Boeing purchased the plant, Hobbs says, $700 million has been put back into it.
Boeing Military employs 17,500 people, about three-quarters of them at work on military contracts. The KC-135 Stratotanker modernization program, at $1.3 billion and growing, could be the largest government contract in company history.
In the tangled way of these things, the tanker program was conceived in Omaha, Neb.; promoted from Seattle; debated and funded in Washington, D.C.; researched and developed in Dayton; and administered from Oklahoma City. Parts from 120 subcontractors are being rounded up through military supply centers in Pennsylvania, California, Texas and Utah. Each payment to Boeing is approved by somebody in Albuquerque.
All of this activity finally centers on Wichita, Kan., a town where airplanes are an important business. Wichita is home not only to Boeing, but to much of the general-aviation industry. Cessna, Beechcraft and Lear all have plants here in a city so unpretentious it has named one of its major thoroughfares Hydraulic Drive.
Boeing says it bought and renovated the old Stearman plant and moved most of its military business here in part because of the work ethic and experience of the local populace, something they say they hope to translate into the most efficient aircraft plant in the nation.
Efficient production has not been a hallmark of the defense industry. Preliminary results of a confidential Air Force investigation of factory efficiency at major defense contractors indicate contractors are grossly inefficient, sometimes taking several times as long to complete work as they themselves think they should. The results, obtained from sources by The Times, indicate that some programs never become efficient, even when in full-scale production.
For example, the production of Maverick missiles by Hughes Aircraft, a program that has been going on for several years, still takes four times as long as Hughes says it should. Boeing’s production of Air Launched Cruise Missiles was one of the best programs investigated, but even that program was operating at only 77 percent efficiency in the first quarter of 1985.
Many programs, in the argot of the industry, never slide down the learning curve. Critics say contractors are efficient at just one thing.
“The companies are extremely effective at making profits, which is exactly what they’re there to do,” says a congressional analyst who reviewed the Air Force data.
Those in the industry say efficiencies are hard to come by given the nature of their work. The aerospace defense industry produces high-value items to high specifications and makes relatively few of each.
“We ain’t building refrigerators,” says Hobbs. He points to the sophisticated equipment throughout the Wichita plant, including one milling machine which is so expensive it is never shut off, lest the company fail to recoup even one second’s worth of the investment in it.
Computer terminals are scattered throughout the factory floor, more evidence of the high overhead the company has to carry, he says.
Some of the inefficiencies are created by the government.
Annual budgeting for multiyear programs does not allow the contractors to achieve the economic rates of production they might, they say. The KC-135 tanker modernization program is an example. The program includes modifying the the wings to put new engines on them.
Prior to the program’s being approved, Boeing was already engaged in a more limited modification of the airplanes, putting new skins on the wings.
Boeing would like to perform both the re-winging and the full-scale modernization at the same time. They put the wings on at the rate of six airplanes a month, but there is only enough money in current budgets to perform the modernization at the rate of three a month. Thus, the planes will have to be brought into the plant twice, once for the wings, once for the rest of the work.
Several years ago, the Pentagon decreed that to save money, military warehouses should not have in them more than one year’s supply of anything. So, rather than order sufficient quantities of spare parts, procurement officers were forced to order, then reorder, tiny quantities of spare parts, “onesies and twosies,” they call them.
Each time an order would be made, the manufacturer would have to gear up to fill just the tiny order.
A Rand Corp. study of the defense industry in 1983 concluded: “In short, the defense producer today is generally a small lot producer responding to an unstable demand and almost always producing less than the economic rate for which his production facilities were set up.”
The study said, in effect, that people ought to stop beating their heads against the wall of the procurement system. The wall is harder than the heads, and will prevail. What they ought to do instead of constant tinkering with the system is make the contractors adapt with new, more versatile production techniques geared to small lot productions.
The congressional budget analyst says the industry explanation of its inefficiencies is incomplete. He says most defense contracts allow contractors to earn profits as a percentage of costs, thus increased costs mean increased earnings.
“Their activity is the opposite of what you would find in the private sector,” he says.“In order to increase profit, they have to increase inefficiencies. There is less cheating than there is idle workers, scrap and rework. It’s the inactivity itself that kills.”
An avionics engineer who worked at Boeing offered an example of that inactivity. He told The Times the company instituted mandatory 20 percent overtime for everybody in the MX missile program when there wasn’t enough work to be done on straight time, effectively driving up the company’s incurred costs and potentially making more profit possible.
“The contractors are simply taking advantage of a bad situation. The element of greed, self-interest overcomes their devotion to the national defense,” says Ompal Chauhan, an Air Force auditor who works at Boeing Military. “But 90 percent of the blame belongs to the government, 10 percent to the contractors.”
Bob Hancock, deputy director of the contract administration office in Oklahoma City which is responsible for the KC-135 program, agrees the contractors should not carry all the blame themselves.
“We get hate mail all the time from contractors saying, `You want to buy a $10 part and you send us 30 pages of documents. What’s wrong with you?”’
Defense industry, he says, is “top-heavy with too many layers of management,” but it has become that way in self-defense, so that they can deal with the Department of Defense.
“They’ve become mirror images of us,” he says.
Hancock complains that Congress and Pentagon hierarchy have jumped too hard on the procurement bandwagon, unbalancing the whole load and threatening, through their added weight, to bring the thing to a halt. Team after team of inspectors and auditors have come trooping through his offices.
“It’s no longer a feeling of heightened awareness; the buyers are traumatized. Everybody forgets that the Air Force’s primary mission is not to buy parts. It’s to fly airplanes,” he says.
Chauhan, the Air Force auditor at Boeing’s plant, is the man who discovered the $748 pliers. He says that rather than grant plant auditors like himself true authority _ they can’t, for instance, disapprove such costs, but can only recommend disapproval _ the Department of Defense sends out literally thousands of inspectors, most of whom, he says, know very little about what they are inspecting. He counted government visitors to Boeing Military last year and found that more than 4,400 of them came and stayed an average of three days each at a cost to the taxpayer of $1 million for per-diem travel payments alone.
The time Boeing spends with government visitors becomes part of the company’s overhead, and that, too, is eventually passed on to taxpayers, as are the salaries of everyone involved.
Overhead has become one of the major battlegrounds between the contractors and the Congress. Aerospace companies, by their nature, have high ratios of overhead to production, in part because companies that manufacture airplanes don’t actually manufacture airplanes. They put them together. Most of the parts are made elsewhere, and much of a company’s effort is directed at tracking, coding and collating those parts, not making them.
Boeing’s specialty is systems integration, not manufacturing.
Malcolm Stamper, Boeing vice chairman, complained in a speech this spring to the Aerospace Industries Association that companies doing business with both commercial and defense customers are “repeatedly mystified by their inability to communicate the righteousness of their cause.”
The reason for that mystification, he said, is that many acceptable practices in the commercial world _ such as passing on to the customer costs for political donations, trips to the Paris Air Show and high salaries, _ are not allowed in defense work. Contractors, accustomed to passing on all costs, find they cannot.
The time has come for contractors to adapt, he said.
Some already have adapted too well, says Ernest Fitzgerald, a Pentagon finance officer.
“We have shifted the burden of proof to the challengers.
Twenty years ago, the opposite was true. We made them prove their costs. Now, unless the contractor labels an expense as being the purchase of whores for executives, we don’t find it. All of the contractors have become adept at putting things in for the auditors to find,” he says.
Additionally, he says, many Defense Department auditors at plants are not tough enough. “They very quickly go native,” he says.
Boeing says regardless of what the auditors do, it has instituted its own reforms within the company. In addition to the internal changes, which the company says will result in savings to the Air Force of more than $300 million over the life of the KC-135 program, the company has offered money-back guarantees on any spare parts or tools the services think cost too much. And the company now refuses to bid on simple items, like the $748 pliers.
The Air Force buyers were initially upset at Boeing’s new stance. They didn’t like paying $748 per pliers, but liked even less the trouble of finding the pliers by themselves. Boeing’s refusal to bid caused a six-month delay in procurement of support equipment and time is money, they say. But the problem has been straightened out and maybe the time was money well spent. Somebody other than Boeing is selling the pliers now, the same pliers. Their total cost, overhead, hardware and all, is $56.
`GOLD-PLATED’ SPECIFICATIONS KICK COSTS WAY UP
A Washington state manufacturer complains that government specifications for the things it wants to buy are often plain silly. A company official, speaking on the condition that the company not be named, told the story of a Defense Department requisition order for Army tents.
The person who wrote the order must have been more accustomed to ordering airplanes than tents, because the specifications for the tent poles required them to be made to exacting lengths with a margin of error of a mere 15/1,000s of an inch. The contractor was stunned, but gave it a try.
As it turned out, the contractor missed the specification not by one-thousandth of an inch, but by a foot and a half, thereby ending both his and the Army’s concern _ and the tent.
Such overspecification, sometimes called gold-plating, is a persistent problem. The local contractor cited a recent Defense Department order for spare parts from his firm. The order specified that each of the parts be individually packaged according to government packaging requirements.
Thus, each of 141 parts was put into a plastic sleeve, then wrapped in plastic bubble-wrap and inserted into a separate foiled envelope with a package of special material to soak up any moisture that might steal into the sealed, foiled envelope. Also in each package went a humidity detector to determine whether the special demoisturizing material worked.
Each envelope was then sealed and placed with the others among more bubble-wrap in a reinforced box with a special bar-code address label and sent off with an accompanying DD Form 250, the only invoice form the department recognizes.
The parts inside all of that elaborate protection were simple stainless-steel hex nuts, the type that can be purchased at any hardware store for a nickel. After packaging, their price was $1.38 each.
BOEING QUIETLY RIDING OUT STORM FROM WEAPONS HORROR STORIES
WICHITA, Kan. _ The public image of the Boeing Co. is that of a turtle _ cautious, slow, but steadfast. Right now, the turtle has its head pulled in.
In the face of the mounting public-relations problems The Horror Stories have produced, many defense contractors have launched campaigns to re-establish their good names. That is not the Boeing style.
One Pentagon official says: “Boeing just hunkers down and tries to ride out the storm.”
Boeing officers declined repeated requests for interviews for these articles. The company restricted its comments to those few offered by designated members of its public-relations staff and refused even to answer written questions.
What the designated spokesmen say and what company officers say in speeches to industry groups on the subject is that the company is minding its own store. They say whatever incidents of isolated abuse there might have been _ and they stress that such incidents, if any, were indeed isolated _ are being taken care of in house.
They stress repeatedly that the aerospace business is a compicated one, little understood by outsiders and, although they do not say so, they imply that many government officials are among the outsiders. They say harsh rhetoric directed at the contractors by politicians is not going to fix whatever problems there might be.
The company is vigorously promoting an internal program called Operation Eagle. Essentially, it is an employee award program in which workers are recognized and sometimes paid for finding cheaper ways to produce military products. Allen Hobbs, a Boeing Military spokesman, says employees have identified more than $300 million in potential savings on in the KC-135 Stratotanker modernization program. The amount of savings overwhelms whatever overcharges there have been, he says.
Hobbs and others say the company’s public-relations problems are caused in part by the media’s concentration on a few incidents of abuse while ignoring the broader self-improvement efforts.
He says media reports sensationalize these few incidents and fail to explain them.
Malcolm Stamper, Boeing vice-chairman, said in announcing the Operation Eagle program that its major goal was to “make all employees aware that as U.S. taxpayers they can personally help to reduce defense costs by working smarter.
“Operation Eagle, is designed to help Boeing take the initiative on costs and quality. It is not good enough that our good reputation is founded on programs that time and again meet budget and performance criteria. It has been shown that one high-priced spare part can quickly change the public’s impression of our true efficiency and how well we operate,“ Stamper said.
In addition to internal cost savings, Boeing last year refused to bid on 68 percent of the specified spare parts and support equipment needed to perform both the KC-135 modernization program and a B-52 modernization contract. In some cases, the company waived its proprietary rights or provided the Air Force with other qualified suppliers who could provide the parts.
The company also offered to refund the price of any part the military purchased from Boeing that is returned because the government felt the price was unreasonable. The offer applies to parts purchased in the year ending July 1. The Department of Defense gladly accepted the offer, but said it would not abide by the July deadline.
USE OF NEGOTIATED CONTRACTS CALLED INVITATION TO ABUSE
The Department of Defense and its critics offer widely differing descriptions of the amount of competitively bid contracts the department awards. This is due in part to their different definitions of what competition is.
Congressional critics define competition as formal sealed bidding. Though Department of Defense officials say competitive bids have been increasing, critics say the use of sealed bids declined from 8 percent to 5 percent of Defense contracts between 1980 and 1984.
The department, however, says more than half of its contracts are granted competitively. The department’s definition of competition includes contracts that are let by what is called competitive negotiation.
Under this procedure, a number of firms bid for a contract.
They do so not by submitting sealed bids, but by sitting down individually with the contract officer and negotiating what they might offer. This is preferred, contract officers say, because the department often does not know precisely what it wants contractors to do. The negotiations allow for more give and take than formal bids, they say.
Critics say competitive negotiations are an invitation to insider deals.
John Heubusch, a congressional aide, says: “Competitive negotiation? That’s an oxymoron. In business, either you compete or you negotiate, you don’t do both at the same time.”
Negotiations, though, are fundamental to the procurement system. Almost every contract is negotiated either before or after it is let, or both. The contract for the third group of KC-135 tankers to be modified took 18 months to negotiate.
Allowable overhead was negotiated. Engineering designs were negotiated. Profit levels were negotiated. Everything was negotiated.
Profit, by the way, is regulated, and can range from about 5 percent to 15 percent. The specific profits negotiated on the tanker modernization are confidential. Neither Boeing nor the Air Force will say how much money Boeing will earn on the program, but sources say the allowable profit is about 12 percent to 14 percent.
The initial tanker contract has been continuously negotiated and renegotiated since 1979. Because of this, its firm-fixed price has grown.
The initial $13 million contract is now worth more than $300 million. Mike Sly, an Air Force program manager for the tanker modernization, says the contract was changed so many times _ more than 200 modifications to date _ because research, development and production were all occurring at once. To save money, the Air Force had ordered that there be no prototype airplane in this program. The first airplane would be a usable, production model when done. And it was, Sly says.
Critics say this might be a praiseworthy goal, but it makes a farce of the notion of “firm, fixed prices.” It also allows contractors to defer paying taxes on government work because taxes do not have to be paid until a contract is completed.
Paul Hoven is a staff researcher at the Washington, D.C.-based Project on Military Procurement, a small, independent group that has been studying procurement issues for five years. He says that although simple cost-plus contracts of the type that led to earlier cost-overrun scandals in the 1960s and 1970s are seldom used anymore (in fact, they are, strictly speaking, illegal), constant readjustment of fixed-priced contracts leads to the same result. Negotiation can not replace competition, he says.
“If DOD talks to a contractor, they consider that competition.
Either they’re incredibly stupid about how free-market capitalism works or they’re incredibly smart about how sole-sourcing works,” he says.
Additionally, critics say, contract officers get overwhelmed by contractors. The officers do not always _ in fact seldom _ have technical expertise. And if a contract officer does, his superior often does not. Contract officers typically are civilians working under military officers. The civilians tend to be career procurement specialists, but the military switches their commanders on average every three years.
Procurement commanders frequently have had no prior procurement experience, but are supposed to bring practical experience and management skills to the job. In the Air Force, procurement commanders and audit supervisors are often former pilots. One auditor complains his ex-pilot supervisor has been made an auditor because he was injured and can no longer fly.
“That’s his qualification,” the auditor says. “He’s an ex-pilot who limps.”