Tag Archives: Lockheed Martin

F-35 Full Rate Production Challenges Include Failing Engine Tests And Replacing 1,005 Turkish Parts

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 Image: Senior Airman Quay Drawdy/U.S. Air Force

DEFENSE NEWS

According to the GAO, the number of F-35 parts delivered late skyrocketed from less than 2,000 in August 2017 to upward of 10,000 in July 2019. At one point in 2019, Pratt & Whitney stopped deliveries of the F135 for an unspecified period due to test failures, which also contributed to the reduction of on-time deliveries.

And those supply chain problems could get even worse as Turkish defense manufacturers are pushed out of the program, the Government Accountability Office said in a May 12 report.

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 “Lockheed Martin’s F-35 Joint Strike Fighter is on the verge of full-rate production, with a decision slated for early 2021. But a congressional watchdog group is concerned that as the company ramps up F-35 production, its suppliers are falling behind.

The number of parts shortages per month also climbed from 875 in July 2018 to more than 8,000 in July 2019. More than 60 percent of that sum was concentrated among 20 suppliers, it said.

“To mitigate late deliveries and parts shortages — and deliver more aircraft on time — the airframe contractor has utilized methods such as reconfiguring the assembly line and moving planned work between different stations along the assembly line,” the GAO said.

“According to the program office, such steps can cause production to be less efficient, which, in turn, can increase the number of labor hours necessary to build each aircraft,” which then drives up cost, the GAO added.

Those problems could be compounded by Turkey’s expulsion from the F-35 program, which was announced last year after the country moved forward with buying the Russian S-400 air defense system. Although Turkey financially contributed to the development of the F-35 as a partner in the program, the U.S. Defense Department has maintained that Turkey cannot buy or operate the F-35 until it gives up the S-400.

The Pentagon has also taken action to begin stripping Turkish industry from the aircraft’s supply chain, a process that involves finding new companies to make 1,005 parts, some of which are sole-sourced by Turkish companies.

Ellen Lord, the Pentagon’s undersecretary for acquisition and sustainment, had hoped to stop contracting with Turkish suppliers by March 2020, but in January she said that some contracts would extend through the year, according to Defense One.

While the Defense Department has found new suppliers to manufacture the parts currently made in Turkey, it is uncertain whether the price of those components will be more expensive. Furthermore, as of December 2019, the new production rates for 15 components were lagging behind that of the legacy Turkish producers.

“According to program officials, some of these new parts suppliers will not be producing at the rate required until next year, as roughly 10 percent are new to the F-35 program,” the GAO said.

“Airframe contractor representatives stated it would take over a year to stand up these new suppliers, with lead times dependent on several factors, such as part complexity, quantity, and the supplier’s production maturity. In addition, these new suppliers are required to go through qualification and testing to ensure the design integrity for their parts.”

The F-35 Joint Program Office disagreed with the GAO’s recommendation to provide certain information to Congress ahead of the full-rate production decision, including an evaluation of production risks and a readiness assessment of the suppliers that are replacing Turkish companies.

In its statement, the JPO said it is already providing an acceptable number of updates on the program’s readiness for full-rate production.

Hard times for the F-35’s engine supplier

Not all F-35 production trends reported by the GAO were bad for the aircraft. Since 2016, Lockheed has made progress in delivering a greater proportion of F-35s on schedule, with 117 of 134 F-35s delivered on time in 2019.

However, one of the biggest subsystems of the F-35 — the F135 engine produced by Pratt & Whitney — drifted in the opposite direction, with a whopping 91 percent of engines delivered behind schedule.

At one point in 2019, Pratt & Whitney stopped deliveries of the F135 for an unspecified period due to test failures, which also contributed to the reduction of on-time deliveries.

According to the Defense Contracts Management Agency, “there have been 18 engine test failures in 2019, which is eight more than in 2018, each requiring disassembly and rework,” the GAO wrote. “To address this issue, the engine contractor has developed new tooling for the assembly line and has established a team to identify characteristics leading to the test failures. Plans are also in place for additional training for employees.”

https://www.defensenews.com/air/2020/05/12/some-f-35-suppliers-are-having-trouble-delivering-parts-on-schedule-and-turkeys-departure-could-make-that-worse/

Government Considers Cost Reductions To $1.2 Trillion F-35 Logistics Program

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Photo: Bloomberg

BLOOMBERG QUINT

Dissolving Joint Program Office, prodding Lockheed Martin to give up data rights on some spare parts so other suppliers could be sought and a “Performance Based” Logistics contract among possibilities.

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“House lawmakers trying to reduce the projected $1.1 trillion cost of maintaining the F-35 over 60 years are considering options including eliminating the Pentagon’s central office in charge of the fighter jet built by Lockheed Martin Corp. Dispersing responsibility to the three military services that are getting variations of the plane is among possibilities drafted by the Defense Department that will be reviewed Tuesday in a closed-door briefing of two House Armed Services subcommittees.

The proposal to “potentially dissolve and disaggregate the F-35 Joint Program Office” is aimed at gains in “efficiency and effectiveness,” Monica Matoush, a spokeswoman for the Armed Services Committee, said in an email.

Other possibilities include prodding Lockheed Martin to give up data rights on some spare parts — so that other suppliers could be sought — and pushing for improvements in the aircraft’s flawed diagnostic system.

Matoush said the briefing, which will include Under Secretary of Defense Ellen Lord and representatives of the Government Accountability Office, will also “evaluate the merits and disadvantages” of an unsolicited proposal by Bethesda, Maryland-based Lockheed to enter into a long-term, “performance-based” logistics contract for F-35 sustainment.

If accepted — and delivered on — that could be worth billions of dollars to the company. The proposal would tie financial incentives to reducing the plane’s cost per hour of flight to $25,000 from $35,000 and maintaining 80% fleet readiness. Lord said Tuesday at a meeting with defense reporters that she’s still undecided on the proposal’s merits. The Navy is taking the lead in gathering the data needed to thoroughly assess the plan and an official assigned to review it will present his findings Friday, Lord said.

Cost ‘Clarity’

“At this point, I don’t know whether” the Lockheed proposal “makes sense or not because I have not seen all the elements of cost” and data backing it up, she said. Lord added that she’s seen similar “performance-based logistics” proposals “be very efficient and effective when it’s a ‘win’ for industry and a ‘win’ for the government,” but “right now we need some clarity around cost” and intellectual property issues.

Separately, Lord later told Bloomberg that the F-35’s crucial but problematic aircraft diagnostics system known as ALIS, for Autonomic Logistics Information System, has been improved to replace the current version and renamed “ODIN,” after the father of the god Thor in Norse mythology. It stands for Operational Data Integrated Network.”

https://www.bloomberg.com/news/articles/2020-01-14/scrapping-pentagon-s-f-35-office-an-option-to-cut-upkeep-costs

Deceptive Pentagon Math In $89.2 Million F-35 Fighter Price

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(Photo: DoD / Staff Sgt. Devin Doskey, U.S. Air Force)

THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)

This figure is the unit recurring flyaway cost—the price tag for just the aircraft and engine, which by themselves do not make a fully functioning weapon system.

That $89.2 million does not include procurement funds spent on initial spare parts, flight training simulators, the expensive – and poorly performing – ALIS support system, and more, all unique to the F-35.

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“Pentagon leaders are likely reveling in the news that they have negotiated an agreement with Lockheed Martin that they claim drives down the unit cost of the F-35 joint strike fighter to below $80 million in the next few years. While any reduction in costs for the most expensive weapons program in history is an improvement, all is not as it appears in the industry trade press. A quick perusal of publicly available Pentagon budget documents shows the real cost of the F-35 to be above $100 million per copy for the fiscal year 2020 buy. Given the work that remains, and the way the Pentagon has surrendered many key responsibilities to the manufacturer, the price is likely to be at least that amount or higher for the foreseeable future.

The most commonly mentioned figure is for the F-35A, the Air Force’s conventional takeoff variant and the least expensive model. The current estimate for the lot of aircraft currently in production is $89.2 million apiece. This figure is the unit recurring flyaway cost—the price tag for just the aircraft and engine, which by themselves do not make a fully functioning weapon system.

When we also consider the future modifications necessary to correct both the known and potential design flaws and the aircraft’s $44,000 per-flight-hour cost, it is easy to see why the F-35 program is the most expensive in history.

A handy tool for anyone interested in knowing more about actual costs of military programs and weapons is readily available online. The Pentagon posts budget materials for each fiscal year on the comptroller’s webpage. Included are budget estimates and the justification documents containing more charts and figures than any reasonable person would care to view.

The Air Force’s fiscal year 2020 budget pays for the 48 F-35As in Lot 11. The current $89.2 million dollar price the Pentagon uses is calculated by separating out just the costs for the airframe and the engine from the larger total procurement cost that includes ALIS, simulators, initial spare parts, and more to get to the artificially low $89.2 million. That is far from the whole story.

The Pentagon’s own budget documents list the FY 2020 procurement cost for those 48 aircraft as more than $101 million, nearly $12 million more than the figure rolled out for press reports. Using the Navy’s charts and the same math shows that the real costs for each F-35C is more than $123 million, while each F-35B costs in excess of $166 million. But even that figure doesn’t tell the whole story.

None of this factors in the research and development costs of the program. Ellen Lord, the Pentagon’s acquisition chief, announced on October 29 that the program needs more money to complete the developmental and testing phase of the program. The latest publicly available figures show that taxpayers will have spent approximately $55.5 billion for F-35 research and development. If the Pentagon purchases all 2,470 F-35s in the current plan, the true cost of each aircraft goes up by nearly $22.5 million. Program officials had expected to complete development and operational testing by December 2019. But designers and engineers have struggled to complete the Joint Simulation Environment, a highly accurate simulator necessary to complete operational testing. The troubles stem from programming flight data and aircraft performance data gathered during real-world flights into the simulation software. The Joint Strike Fighter program will run out of development money before the simulator and the subsequent operational testing can be completed. The Pentagon expects to announce before the end of 2019 just how much more money beyond the program’s current $406.4 billion budget will be needed to complete this phase of the program.

No matter how the production costs are calculated, that money alone will not buy you a fully functional F-35. Engineers were not able to complete all of the combat capabilities that were supposed to be included as part of the original development phase of the program. This incomplete work, which taxpayers have already paid for, will now be completed in a new development phase and called “follow-on modernization.” Only time will tell how much will ultimately be spent in this effort, but taxpayers are already on the hook for $10.5 billion.

There is also the matter of the cost of maintenance and ownership. Lockheed Martin stands to make most of its money from the F-35 program in annual non-competitive sustainment contracts. As POGO has reported before, the services can’t independently perform many of the most basic maintenance functions on the F-35 and must instead rely on civilian contractors. Lockheed Martin currently receives $2 billion a year to keep the fleet of approximately 400 aircraft flying, meaning the annual operating cost for each F-35 is $5 million.

Pentagon officials had expected to make the long-anticipated full-rate production decision for the F-35 program before the end of this year. Also known as a Milestone C decision, the program must complete all the steps, including operational testing, as required by federal law. No one appears to be letting such trifling details stand in their way, however. The recent cost estimates emerged as part of the announcement of a $34 billion deal for three years’ worth of F-35 production—478 aircraft for the U.S. services and international customers—beginning in 2020. Officials continue to call this “low-rate initial production,” but this is essentially full-rate production in everything but name. The announced 169 F-35s for Lot 14 is the full-rate production figure for the program.

The public shouldn’t fall for the gimmicks the Defense Department constantly uses on aircraft unit cost, but the press, amazingly, seems to fall for it every time. Congress shouldn’t buy these phony cost projections and compound the program’s problems, based on a phony buy-in price by buying more F-35s before testing is complete.”

https://www.pogo.org/analysis/2019/11/deceptive-pentagon-math-tries-to-obscure-100-million-price-tag-for-f-35/

Bestselling Pentagon Fiction

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Image: Matt Wuerker -“Politico dot Com Gallery

THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)

Revolving-door hires and former defense executives in government remain a powerful force for the status quo in Pentagon spending.

They exert influence as needed to keep big-ticket weapons programs like the F-35 combat aircraft up and running, whether they are needed or not, whether they work as promised or not.

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“This piece originally appeared on TomDispatch.com.

For the Pentagon, happy days are here again (if they ever left). With a budget totaling more than $1.4 trillion for the next two years, the department is riding high, even as it attempts to set the stage for yet more spending increases in the years to come.

With such enormous sums now locked in, Secretary of Defense (and former Raytheon lobbyist) Mark Esper is already going through a ritual that couldn’t be more familiar to Pentagon watchers. He’s pledged to “reform” the bureaucracy and the spending priorities of the Department of Defense to better address the latest proposed threats du jour, Russia and China. His main focus: paring back the Pentagon’s “Fourth Estate” — an alphabet soup of bureaucracies not under the control of any of the military services that sucks up about 20% of the $700 billion-plus annual budget.

Esper’s promises to streamline the spending machine should be taken with more than the usual grain of salt. Virtually every secretary of defense in living memory has made similar commitments, with little or nothing to show for them in terms of documented savings. Far from eliminating wasteful programs, efforts pursued by those past secretaries and by Congress under similar banners have been effective in only one obvious way: further reducing oversight and civilian control of the Pentagon rather than waste and inefficiency in it.

Examples of gutting oversight under the guise of reform abound, including attempting to eliminate offices focused on closing excess military bases and sidelining officials responsible for testing the safety and effectiveness of weapon systems before their deployment. During the administration of President Bill Clinton, for instance, the slogan of the day — “reinventing government” — ended up, in Pentagon terms, meaning the gutting of contract oversight. In fact, just to repair the damage from that so-called reform and rebuild that workforce took another $3.5 billion. Gordon Adams, former associate director for national security and international affairs at the White House Office of Management and Budget, noted accurately that such efforts often prove little more than a “phony management savings waltz.”

Secretary of Defense Esper has also pledged to eliminate older weapons programs to make way for systems more suited to great power conflict. Past efforts along these lines have meant attempts to retire proven, less expensive systems like the A-10 “Warthog” — the close-air-support aircraft that protects troops in combat — to make way for the over-priced, underperforming F-35 jet fighter and similar projects.

Never mind that a war with either Russia or China — both nuclear-armed states — would be catastrophic. Never mind that more effort should be spent figuring out how to avoid conflict with both of them, rather than spinning out scenarios for fighting them more effectively (or at least more expensively). Prioritizing unlikely scenarios makes for a great payday for contractors, but often sacrifices the ability of the military to actually address current challenges. It takes the focus away from effectively fighting the real asymmetric wars the U.S. has been fighting since World War II. It leaves taxpayers with massive bills for systems that almost invariably turn out to be over cost and behind schedule. Just as an infamous (and nonexistent) “bomber gap” with the Soviet Union was used by the Pentagon and its boosters to increase military spending in the 1950s, the current hype around ultra-high-speed, hypersonic weapons will only lead to sky’s-the-limit expenditures and a new global arms race.

Esper’s efforts may end up failing even on their own narrow terms. Reforming the Pentagon is hard work, not only because it’s one of the world’s largest bureaucracies, but because there are far too many parochial interests that profit from the status quo. Under the circumstances, it matters little if current spending patterns aren’t aligned with any rational notion of what it would take to defend the United States and its allies.

A Revolving-Door World

The Department of Defense regularly claims that it has implemented “efficiencies” to ensure that every penny of your tax dollars is being wisely spent. Such efforts, however, are little more than marketing ploys designed to fend off future calls for cuts in the Pentagon’s still-ballooning budget. Here are just two recent examples of this sadly familiar story.

In September 2018, the Government Accountability Office (GAO) released a report stating that the Department of Defense had provided insufficient evidence that $154 billion in alleged “efficiency savings” from fiscal years 2012 to 2016 had been realized; the department claimed credit for them anyway.

Just this month, the GAO came to a similar conclusion regarding a proposed Pentagon reform plan that was to save $18.4 billion between fiscal years 2017 and 2020. Its report stated that the Pentagon had “provided limited documentation of… progress,” which meant the GAO “could not independently assess and verify” it. Consider that a charitable way of suggesting that the Department of Defense was once again projecting a false image of fiscal discipline, even as it was drowning in hundreds of billions of your tax dollars. The GAO, however, failed to mention one crucial thing: even if those alleged savings had been realized, they would simply have been plowed into other Pentagon programs, not used to reduce the department’s bloated budget.

Esper and his colleagues have argued that it will be different this time. In an August 2nd memo, his principal deputy, David Norquist, stated that “we will begin immediately and move forward aggressively… The review will consider all ideas — no reform is too small, too bold, or too controversial to be considered.”

Even if Esper and Norquist were, however, to propose real changes, they would undoubtedly run into serious interference within the Pentagon, not to mention from their commander-in-chief, President Donald Trump, a man determined to plough ever more taxpayer dollars into the military, and from members of Congress in states counting on jobs generated by the military-industrial complex. Inside the Pentagon, on the other hand, resistance to change will be spearheaded by officials who previously held jobs in the defense industry or hope to do so in the future. We’re talking, of course, about those who have made use of, or will make use of, the infamous “revolving door” between weapons companies and the government. Consider that the essence of the military-industrial complex in action.

Such ties start at the top. During the Trump administration, the post of secretary of defense has been passed from one former defense industry figure to another, as if it were literally reserved only for key officials from major weapons makers. Trump’s first secretary of defense, retired General James (“Mad Dog”) Mattis, came to the Pentagon straight from the board of General Dynamics, a position he returned to shortly after leaving the department. Interim Secretary Patrick Shanahan, who followed him, had been an executive at Boeing, while current Secretary Esper was Raytheon’s former chief in-house lobbyist. The Pentagon’s number three official, John Rood, similarly comes courtesy of Lockheed Martin. And the list only goes on from there.

This has been a systemic problem in Democratic and Republican administrations, but there has been a marked increase in such appointments under Donald Trump. A Bloomberg Government analysis found that roughly half of the Obama administration’s top Pentagon officials had defense contractor experience. In the Trump administration, that number has reached a startling 80%-plus.

That revolving door, of course, swings both ways. Defense executives come into government, where they make decisions that benefit their former colleagues and companies. Then, as retiring government officials, they go to work for defense firms where they can use their carefully developed government contacts to benefit their new (or old) employers. This practice is endemic. A study by the Project On Government Oversight found 645 cases in which the top 20 defense contractors hired former senior government officials, military officers, members of Congress, or senior legislative staff as lobbyists, board members, or senior executives in 2018 alone.

There is, of course, nothing new about any of this. The late Senator William Proxmire (D-WI) pinpointed the problem with the revolving door back in 1969:

“The easy movement of high-ranking military officers into jobs with major defense contractors and the reverse movement of top executives in major defense contractors into high Pentagon jobs is solid evidence of the military-industrial complex in operation. It is a real threat to the public interest because it increases the chances of abuse… How hard a bargain will officers involved in procurement planning or specifications drive when they are one or two years from retirement and have the example to look at over 2,000 fellow officers doing well on the outside after retirement?”

For his part, President Trump has repeatedly bragged about his role in promoting defense-related employment in key states, both from Pentagon budget increases and the sale of arms to repressive regimes like Saudi Arabia. In March, he held a one-hour campaign-style rally for workers at a tank plant in Lima, Ohio, at which he typically suggested that his budget increases had saved their jobs.

As for Congress, when the Army, in a rare move, actually sought to save a modest amount of money by canceling an upgrade of its CH-47 transport helicopter, the Senate struck back, calling for funding that the Pentagon hadn’t even requested in order to proceed with the program. The reason? Protecting jobs at Boeing’s Philadelphia-area factory that was scheduled to carry out the upgrades. Unsurprisingly, Trump seems fine with this congressional initiative (affecting the key battleground state of Pennsylvania), which still needs to survive a House-Senate conference on the defense bill.

The bottom line: Donald Trump is likely to oppose any changes that might have even the smallest impact on employment in states where he needs support in election campaign 2020. Defense industry consultant Loren Thompson summed up the case as follows: “We’re too close to the presidential election and nobody [at the White House] wants to lose votes by killing a program.” And keep in mind that this president is far from alone in taking such a stance. Similar reelection pressures led former President Jimmy Carter to increase Pentagon spending at the end of his term and caused the George H. W. Bush administration to reverse a decision to cancel the troubled V-22 Osprey, a novel part-helicopter, part-airplane that would later be implicated in crashes killing dozens of Marines.

“We Won’t Get Fooled Again”

What would a genuine Pentagon reform plan look like? There are areas that could easily yield major savings with sufficient political will and persistence. The most obvious of these might be the Pentagon’s employment of more than 600,000 private contractors, many of whom do jobs that could be done by government civilians for less. Cutting that work force to “only” about half a million, for example, could save more than a quarter of a trillion dollars over the next decade, as noted in a recent report by the Center for International Policy’s Sustainable Defense Task Force (of which both authors of this article were members).

Billions more could be saved by eliminating unnecessary military bases. Even the Pentagon claims that it has 20% more facilities than it needs. A more reasonable, restrained defense strategy, including ending America’s twenty-first-century forever wars, would make far more bases redundant, both at home and among the 800 or so now scattered around the planet in an historically unprecedented fashion. Similarly, the president’s obsession with creating an expensive Space Force should be blocked, given that it’s likely only to increase bureaucracy and duplication, while ensuring an arms race above the planet as well as on it.

Real reform would also mean changing how the Pentagon does business (not to speak of the way it makes war). Such savings would naturally start by simply curbing the corruption that comes from personnel in high positions who are guaranteed to put the interests of defense contractors ahead of those of taxpayers and the real needs of American security. (There are also few restrictions on former officials working for foreign governments and almost no public disclosure on the subject.) The Project On Government Oversight found hundreds of Pentagon officials leaving for defense industry jobs, raising obvious questions about whether decisions they made were in the public interest or meant to advance their own future paydays.

Real reform would close the many loopholes in current ethics laws, extend cooling-off periods between when an official leaves government and when he or she can work for an arms contractor, and make far more prominent information about when retired national security officials switch teams from government to industry (or vice versa). Unfortunately, since Esper himself has refused to pledge not to return to the world of the corporate weapons makers after his stint as secretary of defense, this sort of reform will undoubtedly never be part of his “reform” agenda.

One outcome of his initiative, however, will definitely not be money-saving in any way. It will be to boost spending on high-tech systems like missile defense and artificial intelligence on the almost laughable grounds (given the past history of weapons development) that they can provide more military capability for less money. Whether you look at the Navy’s Ford aircraft carriers — the first two costing $13.1 billion and $11.3 billion — or the Air Force’s aerial refueling tanker (which has taken nearly two decades to procure), it’s not hard to see how often vaunted technological revolutions prove staggeringly costly — far, far beyond initial estimates — yet result in smaller, less effective forces. As longtime Pentagon reformer Tom Christie has pointed out, to really change the acquisition system would require building in significantly more discipline. That would mean demonstrating the effective and reliable use of new technology through rigorous field-testing before advancing fragile weapons systems to the production stage, ensuring future maintenance and other headaches for troops in combat.

There is, in addition, a larger issue underlying all this talk of spending reform at the Pentagon. After all, Esper’s “reforms” are visibly designed to align Pentagon spending with the department’s new priority: combatting the security challenges posed by Russia and China. Start with one crucial thing: these challenges have been greatly exaggerated, both in the Trump administration’s national defense strategy and in the report of the industry-led National Defense Strategy Commission. That document, when you analyze its future math, even had the nerve to claim that the Pentagon budget would need to be boosted to nearly $1 trillion annually within the next five years, reports Taxpayers for Common Sense.

Russia has much to answer for — from its assistance to the Syrian army’s ongoing slaughter of civilians to its military meddling in the affairs of Ukraine — but the response to such challenges should not be to spend more on ships, planes, and advanced nuclear weapons, as current Pentagon plans would do. In reality, the economy and military of Russia, a shaky petro-state only passing for a great power, are already overshadowed by those of the U.S. and its NATO allies. Throwing more money at the Pentagon will do nothing to change Russian behavior in a positive fashion. Taking measures that are in the interests of both countries like renewing the New START nuclear reduction treaty and beginning new talks on curbing their massive nuclear arsenals would be extremely valuable in their own right and might also open the door to negotiations on other issues of mutual concern.

China’s challenge to the U.S is significantly more economic than military and, if those two nations wanted to make the planet a safer place, they would cooperate in addressing the threat of climate change, not launch a new arms race. Genuine reform of the Pentagon’s massive budget is urgently needed, but rest assured that Secretary of Defense Esper’s claims about implementing real changes to save taxpayer dollars while making the U.S. military more effective are the equivalent of bestseller-list Pentagon fiction. The motto of Congress, not to speak of the White House and the public, with respect to the Pentagon’s latest claims of fiscal probity should be “we won’t get fooled again.”

https://www.pogo.org/analysis/2019/09/bestselling-pentagon-fiction/


The Incredibly Shrinking Defense Industry

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Image: “Motley Fool” – A Summary of companies that now comprise 5 large prime contractors (Does Not Include Pending Merger Between United Technologies and Raytheon )

THE PROJECT ON GOVERNMENT OVERSIGHT By Mark Thompson

The “military-industrial complex” that President (and five-star Army general) Dwight Eisenhower warned us of in 1961 has funneled down to a few “Walmarts of war.”

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“When I began covering the U.S. military for the Fort Worth Star-Telegram in Washington 40 years ago, it was to report on the Texas contractors who built what the Pentagon bought. Tens of thousands of the paper’s readers cared a lot about the fate of the weapons rolling off their assembly lines. Cuts in production ordered by the Pentagon or Congress in faraway Washington could take food off their table; boosts could lead to overtime on the line and a fatter paycheck.

Back then, General Dynamics was building the Air Force’s agile F-16 fighter on Fort Worth’s west side. Vought was building the Navy’s A-7 attack plane nearby. And Texas Instruments (TI) was building the revolutionary High-Speed Anti-Radiation Missile—HARM—which could destroy enemy radars. But as the U.S. defense industry entered a post-Cold War contraction, a rash of mergers changed all those name plates. The F-16 ended up being built by Lockheed Martin. Vought was spun off from the LTV Corp., a once-powerful conglomerate, with pieces ending up in the arms of Northrop Grumman. And the HARM missile is no longer produced by TI, but by the Raytheon Corp.

The merger mania that surged as the Cold War wound down—when 51 aerospace and defense companies shrank to five—is making a comeback. The “military-industrial complex” that President (and five-star Army general) Dwight Eisenhower warned us of in 1961 has funneled down to a few “Walmarts of war,” as Daniel Wirls, a professor at the University of California, Santa Cruz, quoted defense researchers calling the surviving contractors in a June 26 Washington Post column. Less competition can drive up costs while dampening innovation. Backers counter that efficiencies, job cuts, primarily, lead to lower costs that can save the Pentagon money—rarely—or let it buy more for the same price—also rare. And the middlemen—the lawyers and financiers who nurture these deals—do just fine, thanks.

Mergers’ merits are murky when it comes to costs and innovation, and haven’t been studied much. It’d be a good move, both for taxpayers and the government, if Congress and the Government Accountability Office took deep dives into the issue to learn enough to make smart decisions. The issue has been debated for decades. Back in 1997, Robert Pitofsky, former chairman of the Federal Trade Commission (FTC), told Congress that the FTC “strongly believes … that competition produces the best goods at the lowest prices and is also most conducive to innovation.”

The latest chapter in Pentagon-contractor consolidation is the June 9 announcement that Raytheon and the defense division of United Technologies Corp. plan to merge. And this announcement comes four years after United Technologies sold its Sikorsky helicopter unit to Lockheed Martin, the Pentagon’s biggest contractor, for $9 billion. The pending merger includes United Technologies’ booming aerospace business—jet engines (including those for the F-35, as well as the F-15, F-16, and F-22) and cockpit electronics—with Raytheon, builder of Tomahawk cruise missiles (acquired when it bought Hughes Aircraft in 1997, which acquired it when it purchased General Dynamics’ missile division in 1992) and ground-fired Patriot air-defense missile systems. The new company—to be known as Raytheon Technologies—would have annual sales of about $74 billion. The companies have set up a website to herald their union.

The Raytheon-United Technologies deal is just the latest in a series of mergers in the defense industry: Over the past year, United Technologies bought Rockwell Collins for $30 billion, defense companies Harris Corp. and L3 Technologies agreed to merge in a $34 billion deal, and Northrop bought rocket-maker Orbital ATK for $9.2 billion.

The Raytheon-United Technologies combo boasts 60,000 engineers and 38,000 patents. Both are generally “platform agnostic,” building pieces for aircraft, tanks, and ships built by others, and they rarely compete with one another for Pentagon contracts. That suggests the federal government won’t object to the deal, which is expected to close in the first half of 2020.

The Justice Department is the federal agency that reviews such mergers, with input from both the Pentagon and the Federal Trade Commission. The Pentagon’s Office of Industrial Policy is primarily focused on the national security impact of such consolidations that might reduce military might, while Justice and the FTC are more concerned with broader antitrust issues that could lead to military-hardware monopolies. Although the Obama Administration’s policy was that it would oppose mergers among the Big 5 defense firms, the Trump Administration hasn’t endorsed that view. (The five contractors doing the most business with the Pentagon in 2018 were Lockheed in the top spot, followed by Raytheon, BAE Systems, Northrop Grumman, and Boeing; United Technologies ranked 11th).

Still, the commander in chief is fretting about this merger nonetheless. “I am a little concerned about United Technologies and Raytheon because one of the things that I bring up all of the time, we used to have many plane companies,” President Trump told CNBC shortly after the companies announced their plan to join forces. “We used to have many, many. They’ve all merged. Now we have very few. … It is hard to negotiate when you have two companies and sometimes you get one bid.”

(Source: GAO-19-336SP, page 3)

The pending Raytheon-United Technologies deal “would fall just below the previous policy’s formal redline but gets about as close to that line as possible,” an analysis of the proposed merger by the nonprofit Center for Strategic and International Studies said. While the Center said government approval is expected, “it is almost inevitable that the new company will be required to divest some defense capabilities, and potentially some commercial ones, that overlap between Raytheon and United Technologies to preserve competition.”

Defense mergers have accelerated recently, in part because of “early guidance from the new U.S. administration” that defense spending would be on the rise, consulting firm Deloitte said in a 2017 report. In fact, 80 percent of professionals in the aerospace, defense, and government services sectors are bullish on mergers. That’s according to a survey released in April by the independent investment banking firm KippsDeSanto in the heart of suburban Virginia’s defense-contracting nirvana. “We have been in a really good budgetary environment,” Managing Director Michael Misantone told National Defense in April, citing a “large increase in defense spending” as rocket fuel for military mergers.

Of course, it was only a generation ago that precisely the opposite was true. It was plummeting defense budgets that were making mergers all but inevitable—under orders from the Pentagon itself. Then-Defense Secretary Les Aspin and his deputy, Bill Perry, invited the top officials from the nation’s biggest contractors to a dinner at the Pentagon in 1993 to warn that they all wouldn’t survive the coming budget crunch. “We expect defense companies to go out of business,” Perry, who succeeded Aspin as defense secretary in 1994, said after what came to be called “the Last Supper” in defense-contracting circles. “We will stand by and watch it happen.”

In May, the Government Accountability Office (GAO) noted the dire effect of consolidation. Even though the Pentagon has cut four programs from its must-have list, the GAO said, its remaining 82 major programs had grown in cost by $8 billion, to a cool $1.69 trillion. “Portfolio-wide cost growth has occurred in an environment where awards are often made without full and open competition,” the Congressional watchdog agency added. “Specifically, GAO found that DOD did not compete 67 percent of 183 major contracts currently reported for its 82 major programs.” Nearly half of those contracts—47 percent—went the current Big 5: Lockheed, Boeing, General Dynamics, Northrop, and United Technologies (the numbers are even grimmer for taxpayers if supposedly “competitive” bids lead to only a single bidder).

(Source: GAO-19-336SP, page 37)

Between 2008 and 2018, the average cost of a Pentagon weapons system—not including inflation—jumped by 13 percent, the report said. “We have reported that competition is the cornerstone of a sound acquisition process and a critical tool for achieving the best return on investment for taxpayers,” the GAO added. “Generally, a low competition rate can contribute to increased costs of goods and services and decreased buying power.”

We’ve heard similar refrains before. Then-Defense Secretary Ashton Carter said in 2015 that he worried about reaching a point “where we did not have multiple vendors who could compete with one another on many programs.”

The health of the defense-industrial base has been a perennial concern. The latest warning about the Pentagon’s shriveling supplier corps was issued by the Defense Department’s own Office of Manufacturing and Industrial Base Policy on May 13. While big defense-contractor profits remain juicy, many smaller Pentagon suppliers are struggling. And the number of contractors doing defense work is shrinking: 97 percent of the Pentagon’s missiles are built by Lockheed and Raytheon. And 98 percent of the lower-level subcontractors making parts for U.S. munitions are the only source for the military parts they make.

Worse, the Pentagon pipeline for missiles and munitions is plagued with problems, including “material obsolescence and lack of redundant capability, lack of visibility into sub-tier suppliers causing delays in the notification of issues, loss of design and production skill, production gaps and lack of surge capacity planning, and aging infrastructure to manufacture and test the products,” the report warns. “Production gaps for munitions and missiles directly reduce the U.S. capability to deliver kinetic effects against adversaries.” In October, a second report from the Trump Administration said the nation has an increasingly “fragile” defense-industrial base with “entire industries near domestic extinction” and growing reliance on foreign sources.

“There are currently only two domestic suppliers for solid rocket motors used in the majority of DoD missile systems, with a single foreign supplier making up the balance,” the report said. More than 80 percent of the Pentagon’s armored vehicles are built by a single manufacturer in a single plant. There is only a single company producing chaff, the foil-like fibers U.S. warplanes eject to distract incoming missiles.

(Source: National Bureau of Economic Research, page 44)

And don’t count on mergers to spur innovation. Innovation requires the levers of competition to work. Competition drives the perpetual quest to get more bang for the buck by harnessing new technologies. The Pentagon acknowledged as much in 1998 when it succeeded in stopping Lockheed’s move to buy Northrop Grumman. But the shrinking number of contractors is leading to less competition, and therefore less innovation.

“Any shrinking in the number of these enterprises ought to be a matter of concern for the defense agencies and for government antitrust agencies,” William Kovacic, a professor at George Washington University Law School and former head of the Federal Trade Commission, said in the wake of the Raytheon-UTC announcement.

This merger trend isn’t likely to end well, at least for U.S. taxpayers and the military they support. “If the trend to smaller and smaller numbers of weapon system prime contractors continues, one can foresee a future in which the department has at most two or three very large suppliers for all the major weapons systems that we acquire,” Frank Kendall said in 2015, while serving as the undersecretary of defense for acquisition, technology and logistics. “The Department would not consider this to be a positive development, and the American public should not either.”

DoD Inspector General Slams Government Property Management on F-35 Fighter Program

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EDITORS NOTE: For the details of acquisition law on title to, control and management of government owned property please see: https://www.smalltofeds.com/2009/04/small-business-government-contract.html

“DEFENSE NEWS”

“Over the lifespan of the program, the F-35 JPO has not followed the mandated procedures used to manage government-furnished property, or GFP, and instead depended on Lockheed and its subcontractors to keep track of such equipment, stated a DoD IG report released Friday.

Lockheed has self-reported losing $271 million in government property, but the Pentagon has no way to validate that figure, the report noted. “

______________________________________________________________________________

“The F-35 Joint Program Office has not adequately tracked government property leant or leased to Lockheed Martin and its subcontractors, an oversight that a new investigation by the Defense Department’s inspector general said could impact readiness.

Building the F-35 Joint Strike Fighter requires the use of government property such as materiel, special tooling like molds used to form the jet’s structure and unique test equipment.

As a result, the DoD does not know the actual value of the F‑35 property and does not have an independent record to verify the contractor‑valued government property of $2.1 billion for the F‑35 program,” the report said. “Without accurate records, the F‑35 Program officials have no visibility over the property and have no metrics to hold the prime contractor accountable for how it manages government property.

“The lack of asset visibility restricts the DoD’s ability to conduct the necessary checks and balances that ensure the prime contractor is managing and spending F‑35 Program funds in the government’s best interest and could impact the DoD’s ability to meet its operational readiness goals for the F‑35 aircraft.”

The report claims the program office did not:

  • Maintain a record of GFP known as an “accountable property system of record,” or APSR.
  • Award contracts with complete GFP lists.
  • Coordinate with the Defense Contract Management Agency on the contracting actions necessary to transition property from being “contractor acquired” to “government furnished.”

In short, “DoD officials failed to implement procedures … to account for and manage government property for more than 16 years” and, during that time, did not hold specific officials responsible for the resulting mismanagement, the report said.

As a result, the IG asserts that the JPO hasn’t been able to provide the level of oversight needed to establish that contractors aren’t misusing government property. 

Meanwhile, Defense Contract Management Agency officials indicated that confusion over the inspection procedures necessary to shift equipment from the “contractor-acquired property” label to the GFP designation led to delays in the ability to use that equipment — which could have a detrimental effect on readiness.

In a statement, the F-35 JPO responded that it was not surprised by the report’s findings and that efforts are underway to address the IG’s recommendations.

“The F-35 Program will continue to inventory, track and contractually account for all GFP associated with the F-35 system, and will diligently strive for opportunities to improve as highlighted by the DoD IG report,” the statement said. “By incorporating both the lessons learned from the DoD IG findings and the JPO’s own internal assessments, we expect to measurably enhance our management of GFP.”

The IG recommended a course of action that it advised should be put in place before the move to full-rate production later this year.

It suggests that the JPO should ensure current lists of GFP are complete and accurate before awarding contracts. It calls for appointing a “component property lead” and “accountable property officer” to ensure that happens and that a formal APSR is created. The IG also directs the program to create procedures that ensure the APSR is updated with the latest data.

The F-35 JPO, in its response, said that a component property lead will be named and will be responsible for ensuring all government property is properly tracked and maintained — and that all relevant financial statements are accounted for.

“Prior to the onset of full-rate production, the JPO has begun physical inventories at all F-35 sites housing GFP. This inventory is expected to run through the end of calendar year 2019,” it said. “Some corrective actions already determined are in process for Low Rate Initial Production (LRIP) Lot 12 and should be complete prior to [a full-rate production] decision. These actions will be worked in concert with the stand-up of the F-35 Program’s Accountable Property System of Record.”

The IG, in its report, said it was satisfied with the corrective actions proposed by the JPO, but that it would review their implementation at a later date.

Creating a record of government property will not be as simple as copying over Lockheed Martin’s record.

Lockheed estimates there are 3.45 million pieces of government property used for the F-35 program, and that equipment is worth an estimated $2.1 billion. However, its records are not written to the same standard that the Defense Department mandates.

For instance, federal regulations require that government records keep track of the contract number associated with a given piece of GFE, while Lockheed did not include that information. Other data recorded by the company — such as the name of a part or its quantity — were incomplete by Pentagon standards.”

https://www.defensenews.com/air/2019/03/15/dod-inspector-general-slams-f-35-program-office-for-allowing-lockheed-to-manage-government-property/

Brass Parachutes: The Problem Of The Pentagon Revolving Door

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Brass_Parachutes.jpg

“THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)”

“There were 645 instances of the top 20 defense contractors in fiscal year 2016 hiring former senior government officials, military officers, Members of Congress, and senior legislative staff as lobbyists, board members, or senior executives in 2018. 

Pentagon officials captured by the contractors they oversee is skewing our spending priorities and foreign policy. Military officers going through the revolving door included 25 Generals, 9 Admirals, 43 Lieutenant Generals, and 23 Vice Admirals.”


“Instances in Which Defense Contractors Hired Senior Government Officials as Executives, Directors, or Lobbyists

Company (in descending order of contract dollars awarded in FY 2016) Number of Lobbyists Number of Executives Number of Directors, Members, or Trustees Total
Lockheed Martin 51 0 4 55
Boeing 69 11 4 84
Raytheon 39 3 5 47
General Dynamics 63 4 3 70
Northrop Grumman 50 4 2 56
United Technologies 52 2 3 57
BAE Systems 24 1 1 26
L-3 Communications 19 0 3 22
Huntington Ingalls Industries 32 1 3 36
Humana 14 0 1 15
Bechtel 8 1 0 9
UnitedHealth Group 39 1 1 41
McKesson Corporation 13 0 0 13
Health Net 16 1 1 18
Bell Boeing Joint Program Office n/a n/a n/a n/a
Science Applications International Corporation (SAIC) 5 4 2 11
AmerisourceBergen 21 0 1 22
Textron 9 3 2 14
Harris Corporation 8 1 2 11
General Atomics 27 2 1 30
Booz Allen Hamilton 3 2 3 8
Totals 562 41 42 645

The number of instances of the revolving door is certainly much higher than what we found using publicly available sources since those sources largely rely upon self-reporting by the companies and individuals. A 2006 Government Accountability Office survey of contractors and Internal Revenue Service data—the most recent government review available—found that 52 contractors employed 2,435 former Department of Defense senior and acquisition officials who had “previously served as generals, admirals, senior executives, program managers, contracting officers, or in other acquisition positions which made them subject to restrictions on their post-DOD employment.”2

Explore the Pentagon Revolving Door Database

The Pentagon Revolving Door Database exposes the depth of the reciprocal relationship between senior Pentagon officials and defense contractors.

Explore the database

Introduction

Governments and corporations want to make sure their leaders and employees act in the best interest of the organization. The private sector has a number of tools for protecting itself from conflicts of interests or otherwise compromising confidential business information. Law firms have conflict-of-interest reviews, and it’s pro forma for major corporations to require departing executives to sign non-disclosure and non-compete agreements. Even fast food restaurants can be exceedingly strict about employees taking jobs with competing chains, or with other franchises in the same chain. Private sector companies do this to protect themselves and their bottom lines.

When it comes to government officials, there are ethics laws that are supposed to protect the public interest. These laws should prevent government officials from using their public service to advance their personal or financial interests at the expense of the public. These laws are frequently insufficient, however. For instance, laws regulating the revolving door—the practice of government officials leaving public service to work for companies they oversaw or regulated—have been ineffective at slowing or stopping it. The revolving door between the government and the corporations it does business with often creates the appearance that government officials are improperly favoring a company in awarding or managing federal programs and contracts. Without transparency and more effective protections of the public interest the revolving door between senior Pentagon officials and officers and defense contractors may be costing American taxpayers billions. Taxpayers deserve protecting just as private sector companies do.

We should be able to have confidence that government officials are making informed decisions based on what’s best for national security, for men and women in uniform, and for the American people.

In his 1961 farewell address, President Dwight D. Eisenhower warned that the influence of the military-industrial complex could “endanger our liberties or democratic processes.” The revolving door of Pentagon officials and senior military leaders seeking lucrative post-government jobs does exactly that. It often confuses what is in the best financial interests of defense contractors—excessively large Pentagon budgets, endless wars, and overpriced weapon systems—with what is in the best interest of military effectiveness and protecting citizens.

The Project On Government Oversight (POGO) has consistently found federal ethics laws to be a tangled mess and insufficient to prevent conflicts of interest. Our first in-depth look into those laws, The Politics of Contracting, revealed how the revolving door leads to trends of agency capture and large defense contractors gathering more monopoly power.7 While those trends may benefit defense industry executives and their stockholders, they undermine competition and performance, lead to higher prices for the military and taxpayers, and can diminish military effectiveness. While there have been some improvements to the laws since we published our first report on the revolving door in 2004, our investigation found the tangled mess remains.

The leadership of the Senate Armed Services Committee expressed concerns in 2017 that the Department was too close to and depended too much on its largest contractors. “90 percent of the spending of the taxpayers’ dollars comes out of five different corporations. That’s not what our Founding Fathers had in mind,” then-Senate Armed Services Committee Chair John McCain (R-AZ) noted at a confirmation hearing for Patrick Shanahan, a former Boeing executive nominated to be Deputy Secretary of Defense. “If you’re drawing from one sector alone, you get this group-think possibility, which could be dangerous,” Ranking Member Jack Reed (D-RI) told reporters.11 Despite those concerns, the Senate confirmed Shanahan.

Following World War II, several five-star generals chose not to go through the revolving door. General George Marshall led the Red Cross. Before becoming president, General Dwight Eisenhower became president of Columbia University. “[A]n officer who has had procurement duties going with any company which does business with the Government presents a problem to the government, to the company with which he goes, and to himself,” General Omar Bradley told the House Armed Services Special investigations subcommittee in 1959. “[N]o former member of the Government should take advantage of his previous position to bring any influence on members of the Defense Department, or any department of Government, to grant contracts to the company with which he is now affiliated.” A number of contemporary retired officers have also found lucrative positions in the private sector that do not create a conflict of interest. Admiral Mike Mullen (USN Ret.), the former Chairman of the Joint Chiefs of Staff, joined the board of Sprint.14 Vice Admiral William Burke, formerly the deputy chief of naval operations for warfare systems, became the chief maritime officer for the Carnival cruise company.15 Lieutenant General Thomas P. Bostick, the 53rd Army Chief of Engineers, became an executive at Intrexon, a biotechnology company. “I have committed to myself to never do business with the US Army Corps of Engineers. I do not want to use my past position to do business with [the US Army Corps of Engineers] either for myself or as a consultant for anyone else,” Bostick told POGO.

“I think anybody that gives out these big contracts should never ever, during their lifetime, be allowed to work for a defense company, for a company that makes that product.”

THEN-PRESIDENT-ELECT DONALD TRUMP

Although it is clear there are opportunities for post-Pentagon service that do not pose conflicts, sadly it is equally clear that a growing number of former military and civilian officials are choosing to take a different path. The vast majority of the individuals identified in this report did not violate any law or regulation. Many of these instances do, however, show the revolving door spinning out of control due to ethics laws that are insufficient to protect the public interest. We should be able to have confidence that government officials are making informed decisions based on what’s best for national security, for men and women in uniform, and for the American people. Instead, the system is skewed by undue influence, rewarding those public officials who favor a future employer or industry with contracts or lucrative jobs. The public is rightfully concerned about the concentration of wealth and self-dealing in the Capitol, with five of the ten richest counties in the United States located within an hour of Washington, DC. Some of that wealth is connected to increased spending on contracting, with the Washington region receiving 17 percent of all federal procurement spending in fiscal year 2016.

This system of influence-peddling has long been recognized, but speaking out against it can hurt the post-government careers of military and civilian officials. “If a colonel or a general stands up and makes a fuss about high cost and poor quality no nice man will come to see him when he retires,” reads a 1983 internal U.S. Air Force memo. “Even if he has no interest in a post-retirement job in the defense industry he is taking a chance by making a fuss.”20 Today, industry programs like “From Battlefield to Board Room,” match up retired and soon-to-be retired military officers with private companies—including large federal contractors—looking to hire new leadership. One individual who benefited from the Battlefield to Board Room program was Major General Mike Boera (USAF Ret.), who was the Air Force’s director of programs and director of requirements and developed programs and business plans for weapon systems. After he went through the Board Room program he became the Executive of Intelligence, Information and Services at Raytheon. The year he joined the company they had received approximately $2.9 billion in Air Force contracts.

In some instances laws designed to punish influence-peddling work. One of the most egregious revolving door examples involved the Principal Deputy Under Secretary of the Air Force Darleen Druyun, who oversaw the management of the Air Force’s weapons acquisition program from 1993 to 2002. Druyun helped Boeing win billions of dollars in business while simultaneously negotiating jobs at Boeing for her son-in-law, and eventually herself. In 2004, Druyun pleaded guilty to a conspiracy charge and was sentenced to nine months in prison.24The Congressional Budget Office found that an aerial refueling aircraft deal Druyun was negotiating with Boeing while seeking employment with the company would have overcharged taxpayers nearly $5.7 billion. In that case, the system ultimately worked, as existing laws did prohibit Druyun’s egregious behavior. However, that was an unusual case. A study commissioned by the Department’s acquisition office identified an additional eight acquisition actions involving Druyun “where the acquisition process appeared irregular or abnormal and where the results may not have been in the best interest of the Government.” The study specifically questioned justifications for sole-source decisions, contract adjustments made after initial award, and changes resulting in “less stringent requirements for the contractor, but higher costs for the Government.”

The revolving door is just one of several forms of undue influence on the operations of the Department of Defense.

The revolving door is just one of several forms of undue influence on the operations of the Department of Defense. While beyond the scope of this report, the reverse-revolving door (when defense industry officials join the government, raising concerns they will then give preferential treatment to their former employers) is also a matter of significant concern. Top contractors have been over-represented in Department leadership. At the beginning of his Administration, President Obama issued an ethics executive order banning lobbyists form working in agencies they lobbied during the previous two years, only to issue the first waiver shortly thereafter to his first Deputy Secretary of Defense, William Lynn, who was previously a Raytheon lobbyist. The last Deputy Secretary for that Administration, Bob Work, joined Raytheon’s board shortly after he retired from the government.28 President Donald Trump’s Secretary of Defense, James Mattis, was a former board member of General Dynamics. His Deputy Secretary, Patrick Shanahan, came from Boeing, the Pentagon’s second largest contractor. Campaign contributions, lobbyists, earmarks, industry-sponsored trips, and contracts structured to garner political support for specific contractors’ programs also undermine the fairness and effectiveness of the procurement system. The government and the public have significantly more—though still inadequate—information about those other forms of influence-peddling. For example, campaign contributions must be periodically disclosed, registered lobbyists must report their expenditures and generic lobbying activities, and incoming executive branch officials have to disclose their positions held outside of government. But the public has significantly less information when it comes to the activities of former government officials.

President Trump has spoken out against that conflict of interest. “I think anybody that gives out these big contracts should never ever, during their lifetime, be allowed to work for a defense company, for a company that makes that product,” then-President-elect Trump said.

Companies will utilize all of the tools of the industry to gain

  • access to senior government policy and program officials;
  • a competitive advantage;
  • business opportunities; and
  • taxpayer dollars.

While all of these influence-peddling methods produce results for companies, the revolving door is truly the quickest and easiest way for a company to get a phone call answered or a person-to-person meeting inside the Pentagon. “I myself don’t get pressured by outsiders, but they do go higher up and get pressure put on me that way,” then-Vice Admiral Hyman G. Rickover told a House oversight committee in 1959 when asked about the revolving door. “It is generally in the nature of urging me to undertake new projects which we consider not worthwhile…it is almost subversive not to want to spend Government money.”30

While ethics restrictions ban some revolving door conflicts, many revolving door instances create an actual conflict of interest, or even the appearance of one, which, although not explicitly illegal, can be just as insidious. Such conflicts can potentially lead to favoritism, ineffective weapons and programs, and bad deals. As a result the conflicts can be detrimental to agencies achieving their mission and waste taxpayer dollars.

Methodology

Many post-government employment ethics laws focus on limiting lobbying or representation before government agencies and officials. The lobbying/representational ban prohibits former federal employees from personally contacting the government on issues they handled during their public service and imposes a one-year or two-year cooling-off period, or a permanent restriction depending on the matter and their level of involvement. In 2008 the Government Accountability Office audit found “significant under-reporting of the contractors’ employment of former [Department of Defense] officials.” To try to get a handle on conflicts of interest, Congress required in the fiscal year 2008 National Defense Authorization Act that the Department of Defense create and maintain a database to track its ethics opinions for its senior officials and officers who seek employment with DoD contractors.33 Unfortunately, that database—known as the After Government Employment Advice Repository (AGEAR)—has never been made public, is limited to certain officials, and, according to several Department of Defense Inspector General reports, is incomplete.34 Notably, the United Kingdom does allow its citizens to see how its government interprets ethics laws for former members of its cabinet offices.

It’s also illegal for contractors to knowingly provide compensation to covered officials for two years after the official left the government unless the official received a written ethics opinion that would allow them to receive compensation. Contractors must also certify they are in compliance with that restriction. If contractors don’t comply with these requirements they could be subject to rescission of their contract, suspension, or debarment.

“Ninety percent of the spending of the taxpayers’ dollars comes out of five different corporations. That’s not what our Founding Fathers had in mind.”

THEN-SENATE ARMED SERVICES COMMITTEE CHAIR JOHN MCCAIN (R-AZ)

For this investigation, POGO compiled, and will continue to update, a database of senior Department officials and senior officers who go through the revolving door. Our database and this report use publicly available information and information obtained through the Freedom of Information Act to show what AGEAR could look like if the public could see it. Our database includes anyone who left the Department of Defense from 2008 to the present and was a senior political appointee, a military officer ranking O-6 and above, or a civilian equivalent, who went to work for an entity with a significant financial interest in the operations of the Department of Defense within two years—the recommended “cooling off period” between when someone leaves government service and when they join an entity that has a financial interest in the work they performed while in government. For defense contractors we defined “a significant financial interest” as receiving $10 million or more in Department of Defense contracts in a fiscal year. This financial threshold mirrors the Department’s standards for its own ethics regulations. We believe two years is long enough to appropriately balance protecting the integrity of the Department’s decision-making processes and the need for people to make a living. There is quantitative analysis that supports the idea that the “influence industry” provides financial incentives based on an individual’s relationships with current policymakers. A 2010 London School of Economics study found “lobbyists with past working experience in the office of a U.S. Senator suffer a 24% drop in revenue—around $177,000—when their ex-employers leave office.”40 At that point the former official’s value is based less on who they know and more appropriately on their substantive skills and knowledge.

We reviewed Department websites and Senate confirmation lists to identify officials who fell within the scope of our study. In some cases we used LinkedIn profiles, and independently confirmed information from those profiles when possible. We also sought comment from the companies, and individuals who could be reached, to confirm that information. We also submitted Freedom of Information Act requests for ethics decisions and information on retired military officers who received waivers from the State Department and their prior military Service to allow them to work on behalf of foreign governments. We are still waiting for responses from the Navy, the Air Force, and the State Department. When available, we referenced agency and employer pages, company and agency press releases, press reports, LinkedIn profiles, and financial disclosure documents. Employer names are based on the name of the entity at the time the official joined the company.

For the top 20 contractors we looked at the companies’ senior executives, board members, and registered lobbyists to see who had previous government experience. Unsurprisingly, a number of these individuals were former Congressional staffers or legislative liaisons for Defense agencies or military Services. Some executives were also lobbyists and counted in each category. A number of the lobbyists were employed by multiple contractors, so there were more instances of the revolving door than people. Many of the lobbyists are not employees of the companies but instead hired through outside firms.

Most of the cases in our database and this report are individuals who went from senior Pentagon positions to work directly for defense contractors as board members or executives, or as lobbyists or consultants on behalf of defense contractors. The definition of lobbyist no longer—if it ever did—captures all the methods of peddling influence, however. A 2016 Politico investigation revealed that well-intended lobbying reforms enacted in recent years not only failed to slow the revolving door but also “created an entire class of professional influencers who operate in the shadows” as “policy advisers, strategic consultants, trade association chiefs, corporate government relations executives, affiliates of agenda-driven research institutes,” among other positions.41

Many of those people occupying those positions aren’t required to register as lobbyists. As another Politico investigation revealed, even Lockheed Martin’s top government affairs official did not register as a lobbyist.42 Tom Eldridge, who was SAIC’s senior vice president for government affairs until mid-2018, was not registered while in that position, either.43 SAIC did not respond to a request for comment about why he was not registered.

Then-presidential candidate Donald Trump appeared to recognize this problem and proposed a five-point plan for ethics reform that would “close all the loopholes that former government officials use by labeling themselves consultants and advisors when we all know they are lobbyists.”44 We included consultants and strategic advisors when we found evidence that they or their firm were in the business of contracting with the Department of Defense, or they were advising corporations with a significant financial interest in Department of Defense programs. Unless otherwise noted, the entities and individuals mentioned in this report declined to comment or could not be reached for comment on our findings.”

https://www.pogo.org/report/2018/11/brass-parachutes/

What Is In the $717 Billion Military Spending Bill Signed Into Law on August 14, 2018?

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What is in Defense Authorization

“SHADOW PROOF”

“What military contractors benefit from this legislation that only 10 senators and 66 representatives voted against?

There never seems to be many who are concerned about how military spending continues to balloon.”


“The bill authorizes $921 million for military construction in “overseas contingency operations,” which is the Pentagon’s euphemism for empire-building or war-making in countries and regions around the world.

That figure is a 23 percent increase from the $748 million in the military spending bill for fiscal year 2018.

As Ryan Alexander of Taxpayers for Common Sense wrote in 2017, this continues a practice President Barack Obama’s administration employed, where projects are moved “off budget” and do not count toward Budget Control Act caps. However, the military projects this slush fund pays for still add considerably to the country’s trillions of dollars in debt.

Sixty-nine million dollars is appropriated for a high value detention facility at Guantanamo Bay, which is a part of Trump’s agenda to not close the prison camps and continue to use facilities to hold detainees.

It extends the Pentagon’s authority to train and equip Syrian opposition groups with arms, which has fueled war in Syria.

Democratic Representative Tulsi Gabbard, who voted against the bill, opposed a section of the bill that gives Defense Secretary James Mattis the authority to draft a strategy to “counter the destabilizing activities of Iran.” She contended it authorized the U.S. military to go to war.

“The provision does not define what destabilizing activities they want our troops and taxpayer dollars to counter. It does not define a clear objective or end-state for our troops to achieve,” Gabbard stated. “In addition, this provision shuts the American people out from this decision entirely by circumventing Congress’s constitutional responsibility to declare war and giving unilateral power and unending authorization to ‘counter Iran’ to this and future administrationswithout defining in any way, shape, or form what the objective really is.”

Both Independent Senator Bernie Sanders and Republican Senator Mike Lee voted against the bill. They’ve demanded Mattis disclose the scope of U.S. military involvement in Saudi Arabia’s war against Yemen.

Remarkably, Democratic Senator Dianne Feinstein voted against the military spending bill because of provisions that remove “congressional oversight for building future nuclear weapons.”

“I don’t believe any president needs more nuclear weapons, but I’m particularly troubled by this administration’s statements that it would consider using low-yield weapons to fight so-called ‘limited’ nuclear wars,” Feinstein declared. “Building nuclear weapons for a role beyond deterrence is incredibly reckless. There is no such thing as a ‘limited’ nuclear war. Once a nuclear weapon is used, it’s game over.”

Trump will have funds available in fiscal year 2019 for a military parade. It also accelerates the Pentagon’s militarization of space by establishing a structure under Strategic Command for a force for “space warfighting,” creating a boondoggle for military contractors.

According to the Republican Policy Committee’s summary, the bill appropriates $360 million for Stryker A1 combat vehicles—an increase of $338.1 million. General Dynamics, which was recently awarded a $258 million “contract modification” by the Pentagon to upgrade 116 Stryker flat-bottom vehicles to the Stryker A1 configuration,” will benefit.

It grants “multiyear procurement authorities” for the Boeing F/A-18E/F Super Hornet aircraft (Boeing), Lockheed Martin C130 Super Hercules aircraft, and Northrop Grumman E-2 Hawkeye aircraft.

Congress appropriated $1.8 billion for the Boeing Super Hornet and $903 million for the Northrop Grumman E-2 Hawkeye.

It earmarks $1.13 billion for the Lockheed Martin F-35 Joint Strike Fighter program.

As the Project on Government Oversight (POGO) reported, “The F-35 has now entered an unprecedented seventeenth year of continuing redesign, test deficiencies, fixes, schedule slippages, and cost overruns. And it’s still not at the finish line.”

“Numerous missteps along the way—from the fact that the two competing contractors, Lockheed Martin and Boeing, submitted ‘flyoff’ planes that were crude and undeveloped ‘technology demonstrators’ rather than following the better practice of submitting fully functional prototypes, to concurrent acquisition malpractice that has prevented design flaws from being discovered until after production models were built—have led to where we are now,” POGO added.

Another billion will further enable the Pentagon to hide cost overruns and conceal developmental issues.

Bloomberg reported in February that Trump would seek 24 Boeing Super Hornets, which reversed a decision by President Barack Obama’s administration to no longer purchase the fighter from Boeing. The Navy is trying to make up for the fact that the Lockheed Martin F-35 Joint Strike Fighters are not yet ready for deployment.

The Navy plans to procure a total of 75 E-2 Hawkeye aircraft from Northrop Grumman, and 45 were already manufactured. The remaining aircraft will feature “aerial refueling capability.”

The bill appropriates $452 million for Boeing’s Apache Block III helicopters, and more than a billion for Lockheed Martin’s UH-60 Blackhawk M Model helicopters. It also earmarks over a billion for the Pentagon’s M1 Abrams Tanks upgrade program, which will benefit General Dynamics.

General Dynamics already was granted a contract from the Army to upgrade 100 Abrams “main battle tanks.” In January 2018, it was reported that the military contractor was not only upgrading the tanks for the U.S. but also Kuwait and Saudi Arabia.

When it comes to drones, the military spending bill appropriates $60 million for the Army’s Gray Eagle system, which benefits General Atomics and Raytheon.

Remarkably, the bill increases the funds for General Atomics’ MQ1 Predator drones from $87 million to more than $100 million. The initial request was for $43 million, but during conference, that number was raised over 100 percent to $103,326,000.

According to OpenSecrets.org, as of August 13, Boeing donated $2.9 million in 2018 to candidates, party committees, other political action committees, or outside spending groups. They ranked 62 out of 16,585 companies or organizations whose PACs or employees and their families that made contributions. The corporation spent $7.5 million on lobbying in 2018 and $16.7 million on lobbying in 2017, ranking tenth out of 3,846 companies or organizations. It donated over $2 million to incumbent senators and representatives.

General Atomics donated $941,000 in 2018. They ranked 273. The corporation spent $2.7 million on lobbying in 2018 and $4.7 million on lobbying in 2017, ranking 94th in 2018. The corporation gave over a half million to incumbents.

General Dynamics donated $2.4 million in 2018. They ranked 84. The corporation spent $5.9 million on lobbying in 2018 and $11.46 million in 2017, ranking twenty-sixth. The corporation gave over $1.4 million to incumbents.

Lockheed Martin donated $3.4 million in 2018. They ranked 44. The corporation spent $6.8 million on lobbying in 2018, and $14.4 million in 2017, ranking sixteenth. The corporation gave over $2.3 million to incumbents.

Raytheon donated $2.2 million in 2018. They ranked 97. The corporation spent $2 million on lobbying in 2018 and $5 million in 2017, ranking eighty-fourth out of 3,645. The corporation donated over $1.2 million to incumbents.

Donations to incumbents are significant because defense corporations have a significant interest in maintaining the status quo. They want representatives and senators who have proven themselves to be dependable in delivering massive appropriations bills for what they manufacture, and they depend on the U.S. government to help them meet their shareholders’ expectations for growth.

Very few senators made statements critical of the military spending bill in its entirety, but Democratic Senator Ron Wyden, who voted against the bill, called attention to how it will benefit the military industrial-complex.

“After Republicans in Congress spent almost $2 trillion in tax breaks that are overwhelmingly skewed to multinational corporations, they’re now pushing through legislation that green-lights billions more for open-ended military commitments,” Wyden stated.

Wyden was also concerned about the provisions for nuclear weapons. He also indicated he could not support a $700 billion bill without having an opportunity to vote for amendments “related to nuclear weapons, sexual assault in the military, presidential war powers, cybersecurity, and Buy America for important national security industries, among others.”

Much is made about how many trillions a program like Medicare For All would cost taxpayers. Everyone is always concerned about social welfare programs, including increasingly popular plans for free college tuition, and how much that would impact the country’s budget.

The best way to build support for these policy changes that would be important to millions of Americans is to emphasize how the country always has trillions for wars (as well as trillions for tax cuts and bailouts for corporations). But there never seems to be many who are concerned about how military spending continues to balloon.”

https://shadowproof.com/2018/08/14/whats-john-mccain-endless-war-spending-bill-trump-signed/

Major Defense Corporations Have Appetites For Startup Investments

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Aerospace Companies Startups

“DEFENSE NEWS”

“Major defense primes including Lockheed, Boeing and Airbus have recently started venture funds with the hope of deepening ties with fledgling commercial tech businesses.

Google may be backing away from future Pentagon contracts, but defense companies are finding a receptive audience in Silicon Valley startups, the head of Lockheed Martin’s venture fund said Wednesday.”

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“Chris Moran had spent about 30 years of his career in Silicon Valley before taking over Lockheed’s venture fund in June 2016. So naturally he felt “a little trepidation” about moving into the defense sector, he told a group of reporters at June 6 roundtable.

“Almost from the outset, I was pleasantly surprised by the embracement from the folks that I met both inside the company and in the startup space, finding those technologies, talking about the problems that we have to work on, and finding that they were very excited about working on those technologies and working with Lockheed Martin,” he said.

Google announced on June 1 that it plans to no longer bid for future contracts on the Pentagon’s Project Maven, which used the company’s machine learning technologies to analyze drone imagery.

When Google’s involvement in the program was disclosed earlier this year, it was met with internal criticism, including a petition signed by 4,000 employees imploring Google to vow never to work with the Defense Department, Wired magazine reported in May.

But despite the controversy, Moran said he hasn’t seen startup companies try to move away from working with defense companies — or accepting their seed money.

“I know there’s kind of an independent streak in the Valley, so maybe they want to keep some distance there,” he said. “But I haven’t seen it. When I go talk to companies — and again I’m working at the engineering level a lot of times — they are absolutely enthralled by the types of things that we work on and love the challenge.”

Lockheed Martin's venture capital investments include a company called Terran Orbital, which is a partner to Lockheed on the LM50 nanosatellite shown here. (Lockheed Martin)
Lockheed Martin’s venture capital investments include a company called Terran Orbital, which is a partner to Lockheed on the LM50 nanosatellite shown here. (Lockheed Martin)

Major defense primes including Lockheed, Boeing and Airbus have recently started venture funds with the hope of deepening ties with fledgling commercial tech businesses, and Moran said the companies’ engagements in Silicon Valley have made defense firms more credible as a partner.

Now, Lockheed is doubling down on its investments. Moran announced during the roundtable that Lockheed will take $100 million of the money saved from recent tax reform legislation and funnel it into the its venture capital fund — increasing that pool of money two times over.

Since 2016, the company has invested $40 million in eight companies, some of which have not be publicly disclosed. While Lockheed’s venture capital arm gets about 500 leads on new technology a year, Moran wants to be able to double that.

“We’d love to go from — generically — about four investments per year, we’d love to get to six or even eight,” he said. “The $200 million will help us to work with more companies, and our goal is to try to get those relationships teed up earlier than later.”

With its new infusion of funds, it might also look to emerging technologies like quantum computing and quantum sensors, where there has been a lot of recent activity.

“Many companies have been formed in the last two years in that, so we’re looking in those areas as well,” Moran said.

So what has Lockheed been getting out of its venture capital investments?

Unlike other investors, Lockheed isn’t funding companies in the hopes of getting a massive financial return. Instead, it wants to invest in startups with big commercial potential, which are developing technologies that could give Lockheed a strategic edge in areas like cyber, space, artificial intelligence, autonomy, 3-D printing and data analytics.

“The perfect investments for us are those that are scaling and growing through commercial activity but at the same time are maturing, hardening, becoming more reliable as a result of the volume and scale that the commercial space can bring,” Moran said.

For instance, Lockheed has made investments in commercial radar and lidar companies closely aligned with the automobile industry.

If those products end up being successful and are integrated into hundreds of thousands of cars, that drastically decreases down the price for customers like Lockheed who could use the system for defense applications and creates a bigger pool of money for the startup to reinvest in its own infrastructure.

While a lot of venture funds are used by companies to pave the way for a future acquisition, that isn’t the case for Lockheed, which would rather keep those firms as potential suppliers based in the commercial sector.

“A home run would look like an entire portfolio of companies we’re working with like Terran Orbital,” the nanosatellite company that Lockheed has partnered with on Defense Department and NASA contracts, said Moran.

Through Terran Orbital, “we found a really capable technology that had immediate or near term application to things that we’re running with our government customers,” he said. “We could both grow them, grow our ability to enter new markets or hone our abilities in existing markets.”

https://www.defensenews.com/industry/2018/06/06/lockheed-martin-sees-an-appetite-for-startup-investments/

$9.29 Billion In F-35 Fighter Contract Awards to Lockheed in July 2017

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F-35 Award

F-35As at Luke Air Force Base

“BREAKING DEFENSE”

” [Friday, July 27 2017] – A $3.69 billion contract was awarded Lockheed Martin for 50 foreign F-35s and work on the Lot 11 LRIP.

Separately, Lockheed won an interim payment of $5.6 billion in early July to help pay for the 91 American F-35s jets in LRIP 11.”


“After the markets closed on a sleepy and rainy summer Friday afternoon, White House Chief of Staff Reince Priebus was ousted and DHS Secretary John Kelly named to take his place, and, oh, by the way, a $3.69 billion contract was awarded Lockheed Martin for 50 foreign F-35s and work on the Lot 11 LRIP.

What’s in play here?

Most of the money, $2.2 billion, goes to buy one British F-35B, one Italian F-35A, eight Australian F-35As, eight Dutch F-35As, four Turkish F-35As, six Norwegian F-35As aircraft, and 22 F-35As for Foreign Military Sales customers.

The F-35 Joint Program Office said the Pentagon would continue to negotiate the 11th low rate initial production contract with Lockheed Martin and expected an agreement by the end of 2017. The full contract should be finished by the end of the year, the JPO said in a statement. At the same time, they said they are negotiating a separate deal with Pratt & Whitney for the F135 engines, which should be done about the same time.”

http://breakingdefense.com/2017/07/one-big-f-35-contract-2-8b-of-3-7b-for-foreign-planes/