Defense industry supporters say contractor work experience is a highly valuable asset for Pentagon officials, especially those who are part of the acquisition process.
But key senators of both parties worry about the ethics problems that could arise by putting these former corporate executives in the highest Defense Department posts where they oversee the awarding of billions of dollars of contracts.
“The Defense Department’s job is to protect our national interests, not the financial interests of defense contractors,” Sen. Elizabeth Warren (D-Mass.), a member of the Armed Services Committee, told Bloomberg Government in a written statement.
Armed Services Chairman John McCain (R-Ariz.) echoed those concerns during the confirmation hearings of a number of Pentagon nominees, including Deputy Defense Secretary Patrick Shanahan, a former Boeing Co. senior vice president for supply chain and operations, who left after 31 years with the company.
Over the course of his Boeing career, Shanahan oversaw several noteworthy military projects, including Army helicopters, a ground-based missile defense program, and the V-22 Osprey aircraft.
During Shanahan’s June 20 confirmation hearing before the Senate Armed Services Committee, McCain said that 90 percent of defense spending “is in the hands of five corporations, of which you represent one. I have to have confidence that the fox is not going to be put back into the henhouse.”
Shanahan promised to divest “all ties” with Boeing, with the exception of his executive retirement savings. “For the duration, if I’m confirmed, I will not deal with any matters regarding Boeing unless cleared by the office of ethics,” he said. Shanahan also committed to make public any recusal waivers he may seek.
Of the 17 top, Senate-confirmed Pentagon posts, including those overseeing defense acquisition, 14 are filled with Trump picks who have worked for defense contractors. By contrast, Obama’s first confirmed picks for the same posts included nine with industry backgrounds, or 56 percent, and seven without. There were 16 comparable positions under Obama at the time, as the acquisition, technology and logistics undersecretary position had yet to be split into two jobs.
By the end of Obama’s second term, a total of only 16 of 35 of Obama’s confirmed appointees for the same jobs, or 46 percent, had direct experience working for contractors before moving to the Pentagon.
The revolving door is working both ways as 19 of 35 of Obama’s top DOD officials have joined or rejoined the defense industry, including taking seats on contractor boards of directors.
During three contentious confirmation hearings last year, McCain and Warren took issue with the nominees’ “rotating back and forth between government” and several of the “big five” largest-grossing defense contractors – Lockheed Martin Corp., Boeing, General Dynamics Corp., Raytheon Co., and Northrop Grumman Corp.
“I will not vote to confirm nominees from industry who do not recuse themselves from matters involving their former employers for the duration required by their ethics agreements,” Warren said, “without waiver and without exception.”
Worries about too-cozy ties between the military and defense contracting giants aren’t new.
“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex,” President Dwight Eisenhower, himself a retired general, warned just before leaving office in 1961. “The potential for the disastrous rise of misplaced power exists and will persist.”
There remain few ironclad protections against conflict-related abuses, government watchdogs say. The Trump White House prohibits senior officials hired into the Pentagon and other agencies from working on matters involving their former employers for two years – but officials can ask for recusal waivers, and such discussions, including whether the waivers have been granted, are kept secret.
“It’s clear that this administration values the experience of business executives over that of career civil servants,” Mandy Smithberger, director of the Straus Military Reform Project for the Project on Government Oversight, a Washington nonprofit group, told Bloomberg Government.
The shift has spurred an increased risk of abuse, Smithberger said. “The lack of transparency is a real concern,” she said. Without proper management of conflicts of interest, unfair competition can result, she said.
Worst-case scenarios could include everything from awarding contracts worth billions of dollars to a former employer, to not properly overseeing a program, to failing to account for cost overruns, she said. When contractors fail to deliver a promised system, or deliver an ineffective plane or ship that doesn’t meet national security needs, significant sums would be wasted.
Defense Secretary James Mattis – who was elected to a board seat with General Dynamics in 2013, and received at least $276,000 in fees from the company since then – has taken several steps to avoid actual and perceived conflicts.
Mattis stepped down from his board seat as a condition of confirmation. In his government ethics agreement made public a year ago, he also agreed to recuse himself, for a year, from participating “personally and substantially in any particular matter involving specific parties in which I know General Dynamics is a party or represents a party,” unless otherwise authorized to participate.
Shanahan set up a unique system to try to avoid conflicts, Bloomberg News reported last August. He signed a so-called “screening arrangement” to notify Mattis of issues involving Boeing.
The conflict alert system was set up to instruct both Mattis and Shanahan’s staff to refer “certain matters to another official” for decisions, the Bloomberg story said.
McCain pressed the conflict issue during November 2017 hearings for John Rood, the nominee for defense undersecretary for policy who previously worked as senior vice president with Lockheed Martin International, and Mark Esper, the Army secretary nominee who was Raytheon’s top lobbyist in Washington from 2010-17, earning more than $1.5 million from the company in his last year there, according to news reports.
Warren asked Rood if he would commit to forgo seeking a waiver from his two-year White House recusal pledge regarding Lockheed projects. McCain followed up, telling Rood, “You should not be making decisions that are related to your previous employment, or would affect the fortunes of one of them. So, I don’t like your answers. Most of us don’t like your answers.”
On Jan. 3, the Senate confirmed Rood by an 81-7 margin. McCain, who has been battling brain cancer, missed the vote. Warren voted no.
Many Pentagon and contractor officials say the main benefit of drawing talent from industry is clear: contractor officials have direct experience designing and building weapons systems and related services.
“Just as it’s good to have former military personnel in Congress providing oversight over the military, it’s good to have former industry people in government providing oversight over industry,” John Luddy, the Aerospace Industries Association’s vice president for national security policy, told Bloomberg Government in a written statement. “They have the experience to know what is and is not reasonable in industry offerings. They know which questions to ask.”
The AIA includes as members the big five defense contractors, each of which declined to comment for this story.
Such experience allows officials to better calculate and manage risk, and realistically assess weapons project schedules, Andrew Hunter, director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies, said in an interview.
Industry expertise is difficult to replicate in the other fields presidents often draw from when looking for defense leadership, such as think tanks, Capitol Hill staff and military officers and civilian staff, Hunter said.
Exit to Industry
Since Trump took office, several Obama-appointed defense officials have taken a time-honored path. They’re now working for the contractors whose weapons programs the Pentagon oversaw under their watch.
Former deputy secretary of defense Robert Work was elected to Raytheon’s board of directors about a month after leaving the Pentagon. Work praised Raytheon in December 2016 as a company that boasts “the best missileers in the world,” Defense News reported.
Frank Kendall, former undersecretary for acquisition, technology and logistics, was appointed to defense contractor Leidos’s board.
Former undersecretary for intelligence Marcel Lettre II is now vice president, national security, for Lockheed Martin.
Deborah Lee James, the former Air Force Secretary, joined Textron Systems’ board of directors.
Most recently, former assistant secretary of the Navy for research, development and acquisition Sean Stackley became a corporate vice president for L3 Technologies.
Former senior defense officials are subject to a range of restrictions involving working or lobbying on programs that they, or others within their company, handled while in the government.
The 2018 National Defense Authorization Act (Public Law 115-91) further tightened the rules for high-ranking former military officers and counterpart civilian Pentagon officials. Under the new defense authorization, former Executive Schedule III officials and higher – who include Work, Kendall, Lettre, and James – are subject to a two-year “cooling off” period, during which they can’t lobby Pentagon officials regarding any department projects.
In the wake of the Druyun case, the Pentagon made several regulatory and policy changes, Defense Department spokesman Patrick Evans told Bloomberg Government in a written statement. Among the changes: a requirement that all public financial disclosure filers certify annually to confirm their review and understanding of the federal post-government employment laws, and a mandate that post-government employment be included annual ethics training.
Senate-confirmed appointees must sign a White House ethics pledge, enter into an Office of Government Ethics-approved agreement that outlines steps taken to avoid conflicts, and divest of any Pentagon contractor stock, Evans said.
Mattis has instructed Pentagon leaders “to engage and work collaboratively with private industry – in a fair and open manner – to find ways to maintain the competitive advantage needed to fight and win the next war, as well as be good stewards of the money entrusted to us by U.S. taxpayers,” Evans said.”