Pentagon Violates Federal Rules On Using Commercial Cost & Profit Data

Pentagon policymakers keep saying they want contractors to be healthy and profitable, but their actions indicate otherwise. The latest installment in a litany of destructive measures is to threaten subpoenas if companies selling commercial items refuse to turn over competition-sensitive information about their costs and profits. This appears to be a violation of the Federal Acquisition Regulation, which directs contracting officials to avoid making excessively burdensome information requests on commercial suppliers, and explicitly prohibits using profit data from other contracts as a basis for negotiating military contracts.

In one sense, this latest deviation by defense officials from accepted practice is no surprise. Under the Obama Administration, the military acquisition community is populated by three types of people — academics, military officers and civil servants. In other words, the three categories of workers you would least expect to understand how business works in the real world of market forces and free enterprise. Being monopsony buyers in a sector from which other customers are legally barred, these bureaucrats can pretty much do whatever they want to their hapless military suppliers. But the government long ago recognized that treating commercial suppliers the same way military contractors get treated was likely to drive them away. So it put in place rules that were supposed to prevent the kinds of excesses the Pentagon is now exhibiting.

The Obama Administration doesn’t appear to understand why these rules exist. It wants to subpoena competition-sensitive information despite the government’s propensity to inadvertently leak that information to the broader marketplace. Even if the Pentagon can learn to secure pricing data, the pressure it is exerting ignores acquisition regulations and drives up the cost of acquiring commercial products, when the whole point of turning to commercial suppliers is to hold down costs. If companies simply give in to this pressure, their costs will rise and their profits will go down — which is a good reason why they should tell the Pentagon to take a hike. Policymakers say they deserve special consideration because the Department of Defense is the biggest customer for some items, but that doesn’t matter to company executives if they are going to impair their ability to meet the other ninety-percent of demand by releasing sensitive information to a buyer who might misuse it.

During the two-and-a-half years the Obama Administration has been in office, the Pentagon’s acquisition shop has presided over one blunder after another. It tried to hire tens of thousands of new bureaucrats at a time when the government was running record deficits. It assured contractors budgets would be stable when every analyst in the business was predicting otherwise. It revised the cost-estimating methodology for its biggest weapons program to make it look much more expensive than it actually was. It terminated programs essential to the nation’s future security while driving up the cost of other programs whose survival depended on affordability. It forced the most capable companies advising the government on spacecraft integration to exit the business because of bogus allegations of conflicts. So this latest stunt of demanding information it’s not even supposed to have falls into a pattern of incompetence masquerading as rigor. The good news is that elections are now only 13 months away, and voters don’t usually reelect amateurs.