Pentagon Blocks Contractor Push for Inflation Bailout

In a rare victory for taxpayers, the Pentagon announced last week that it will not give special treatment to weapons contractors based on their overwrought and inaccurate claims about the impacts of inflation on the arms industry.

In a letter that responded to questions raised by Sen. Elizabeth Warren (D-MA), Pentagon acquisition chief Bill LaPlante flatly stated that ““DoD does not intend to enact a policy to increase contract prices due to inflation.” He further noted that contracting officers “should not agree to requests for adjustment due to changed economic conditions as cost impacts attributable to unanticipated inflation are not a result of contracting officer directed changes.”

The Pentagon’s’ decision comes after a concerted campaign by the weapons sector’s top trade group, the National Defense Industrial Association, which had claimed – in a report that was replete with statistics but short on persuasive proof – that the Department of Defense would lose $110 billion in buying power from Fiscal Year 2021 to Fiscal Year 2023 as a result of the impact of defense procurement on everything from pay for military and civilian personnel to the costs of weapons procurement. The report then called for a $42 billion increase in the Pentagon’s Fiscal Year 2023 budget. The claims on inflation were used to plead for a series of pro-industry measures, including renegotiating existing contracts.

The report and the lobbying that accompanied it were nothing short of a naked money grab, exaggerating the impacts of inflation in order to win longstanding concessions to an industry already flush with cash.

To add insult to injury, it appears that two of the authors of the NDIA
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report, including former deputy defense secretary and comptroller David Norquist, may have violated restrictions on post-government lobbying in their work related to promoting its findings. As Senator Warren noted, “NDIA is clearly trading on the white paper authors’ previous DoD service, noting that ‘all served as comptrollers in the Department of Defense, underlining the significance of the study. This statement alone makes a mockery of the purpose of post-government employment restrictions, which is to ‘prevent former Federal employees or officers exerting undue influence gained from Federal employment and using information gained while working for the Federal Government to unfairly benefit a new employer.’”

As Warren has also pointed out, major defense contractors have enjoyed hefty profits despite the challenges posed by inflation and supply chain interruptions. They have also devoted billions to share buybacks rather than investments in research and development or more efficient production techniques. Furthermore the CEO’s of the top five military contractors – Lockheed Martin
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, Boeing
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, Raytheon, General Dynamics
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, and Northrop Grumman
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– have had no qualms about continuing to take huge compensation packages, to the tune of $20 million per year on average.

There are still serious flaws in the weapons procurement process, including widespread price gouging by firms like TransDigm, which has imposed markups of up to 3,800 percent on basic spare parts. The Project on Government Oversight has published a useful guide to Congressional efforts to stop outrageous industry overcharges, including the Stop Price Gouging the Military Act, sponsored in the Senate by Sen. Warren and in the House by Rep. John Garamendi (D-CA). In addition to overcharges on smaller items, cost overruns on major systems have led to things like $13 billion aircraft carriers – a sum equivalent to the entire budget of the Centers for Disease Control.

Major problems remain, but for now the Pentagon is to be applauded for standing up to the industry’s special pleading. Hopefully it will set the stage for additional reforms that will save billions for taxpayers while demanding better performance by the arms industry.