Tag Archives: Raytheon

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.”

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/

Pentgon Blimps – Out of Control in More Ways than One

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Runaway Blimp

“THE WASHINGTON POST”

“JLENS, broke loose from its tether at the Aberdeen Proving Grounds in Maryland and began drifting towards the Pacific.

The blimp/balloon/dirigible (made by Raytheon at a cost of $2.7 billion for the entire program) then proceeded to move westwards.

As Robert Penn Warren once wrote, “West is where we all plan to go some day. It is where you go when the land gives out and the old-field pines encroach. It is where you go when you get the letter saying: Flee, all is discovered.”

And flee the Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System did, eventually finding itself trapped and lassoed to the ground by NORAD over a field in Montour County, PA. But this wasn’t before the JLENS caused numerous power outages along its flight path in addition to the two F-16 air superiority fighters that were scrambled in order to escort the meandering white menace.

The system, known technically as an aerostat (since they’re SUPPOSED to be tethered to the ground), is meant to observe and detect enemy aircraft but has really just been used in Afghanistan to monitor enemy activity and to help U.S. commanders make sure their troops are wearing their issued protective equipment.

While the JLENS story is over and its journey brief, its solo flight managed to capture the hearts and minds of millions.”

Lost Blimp

 pentagon_cropped21

A law passed in 1994 initially set the deadline for 1997, but the Pentagon’s books were in such disarray that it blew past that date. Then, in 2010, Congress told the Pentagon to comply by 2017.
The next year, Defense Secretary Leon Panetta pledged that the department would by 2014 be ready for a partial account of its finances – a much less detailed accounting than requested of the military services — but the department missed that deadline too.

Pentagon Remains Stubbornly Unable To Account for Its Billions

Lockheed to Design Missile That Hits Multiple Warheads

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“DOD BUZZ”

“Lockheed Martin Corp., the world’s largest defense contractor, plans to design a missile defense component that can take out multiple warheads

Earlier this year, Navy Vice Adm. James Syring, director of the Missile Defense Agency, announced plans to oversee the purchase of the so-called Redesigned Kill Vehicle. Syring talked about it during a Feb. 2 briefing on the agency’s $8.13 billion budget request for 2016.

The announcement comes a few months after Navy Adm. James Winnefeld, the former vice chairman of the Joint Chiefs of Staff, talked about the need to advance the Ground-Based Midcourse Defense System so interceptors are capable of striking multiple incoming targets.

“It boils down to how many missiles we can knock down versus how many the threat can launch,” Winnefeld said during a May 19 speech at the Center for Strategic and International Studies in Washington, D.C.

“If, for example, because of system improvements, we only have to shoot half the number of interceptors per incoming warhead that we see, then we can handle twice the number of inbound warheads,” he said. “That’s why we’re taking a lot of time and effort to improve the capability and reliability of our entire system.”

Lockheed appears to be have teamed with some of the other defense contractors charged with developing the Ground-based Midcourse Defense system.

Boeing Co., the world’s largest aerospace company, is the program’s prime contractor; Dulles, Virginia-based Orbital Sciences Corp. builds the interceptor; and Waltham, Massachusetts-based Raytheon Co. makes the kill vehicle.

For the GMD program alone, the Pentagon requested $1.6 billion. The funding, if approved by Congress, would be used to conduct more flight tests and redesign parts of the system. It would also go toward upgrading and expanding the number of interceptors from 30 to 44, including an eventual 40 at the Army’s Fort Greely in Alaska and four at the Air Force’s Vandenberg Air Force Base in California.

Lawmakers in recent years have raised doubts about the technology, which hit targets in only 8 of 15 attempts through mid-July 2013; the high cost of testing, which runs more than $215 million per exercise; and the fact that many of the interceptors aren’t operational.

Syring has acknowledged the system faced a more demanding development schedule that resulted in interceptors being deployed before testing was complete. Indeed, when a three-stage booster launched from Vandenberg and intercepted a dummy warhead last summer, it was the first successful test in five years.

“I was in the room watching it and you can imagine what it felt like to watch that thing have an extremely successful intercept,” Winnefeld said. “It was a very good shot in the arm for that program. Based on the success of that shot, we were able to resume production of eight planned GBIs in the new and improved configuration,” he said, referring to the Capability Enhancement II, or CE-II, design.

There are a total of eight improved CE-2 interceptors, Winnefeld said. A non-intercept flight is set for later this summer, he said. An intercept test involving a CE-2 Block 1 that incorporates obsolescent changes and a new booster avionics package is scheduled for the end of the year, he said.

“That’s going to be our first intercept of a true ICBM-range target,” he said of the latter. “Should that intercept be successful, the plan is to deliver 10 CE-2 Block 1 GBIs over the next year to achieve our goal of 44 GBIs by the end of 2017.”

http://www.dodbuzz.com/2015/08/14/lockheed-to-design-missile-interceptor-that-hits-multiple-targets/

From Battlefield to Boardroom: Facilitating the DoD Revolving Door

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From Battlefield to Boardroom

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“The National Association for Corporate Directors (NACD) has a “board development program” specifically for high-ranking retired and soon-to-be retired military officers. As part of that program, NACD invites executives of companies—including many large federal contracting firms—to participate. It’s descriptively titled From Battlefield to Boardroom.

Several graduates of From Battlefield to Boardroom illustrate how the program is used as a tool to further a company’s influence in the federal government:

  • Mike Boera, a retired Air Force Major General, was hired shortly after completingthe 2015 program. His LinkedIn profile shows that he became the Executive of Intelligence, Information and Services (IIS) at Raytheon in March 2015. Before retiring from the Air Force, Boera held positions as Director of Air Force Programs and Director of Requirements, where he was tasked with developing programs, business plans, and budgets for different systems, including Command and Control (C2). His expertise in C2 is likely the quality that attracted Raytheon, since he describes his new role at Raytheon as “providing key leadership and insight within Command and Control (C2) Operations Center market for Raytheon IIS business sector.”
  • Nevin Carr, retired from the Navy after reaching the rank of Rear Admiral. After completing the 2015 program he became the U.S. Navy Strategic Account Executive to Leidos in May 2015. In the Navy, Carr served as the Chief of Naval Research and was responsible for the Navy’s research and technology development. As Michael Leiter, a Vice President at Leidos, described in the company press release announcing Carr’s new position, Leidos capitalized on this “invaluable experience and insight of the naval market” by appointing Carr to head their Navy Strategic Account. Carr’s new responsibilities include: “identifying and executing strategic initiatives to achieve customer mission success, and growing the company’s naval and maritime business.”
  • Janice Hamby, a retired U.S. Navy Rear Admiral who graduated from the NACD program, was named to Cubic Corporation’s Board of Directors in April 2015.NACD stated that Hamby was selected through its recruitment services. Cubic Corp.’s press release announcing the hiring of Hamby describes the value of her 30 years of experience in the U.S. Navy cybersecurity arena. Her previous position as DoD’s Deputy Chief Information Officer gives Cubic Corp. confidence that her “knowledge will strengthen the corporation and how [they] deal with these issues.”

Raytheon, Leidos, and Cubic Corp., like many of the others that appear to hire out of the conference, are influential defense contractors that view hiring ex-military officers as an investment. Washington Technology, in its 2015 Top 100 Defense Revenue list, ranked Raytheon 4th with $4.4 billion in revenue from DoD; Leidos 16th with $1.1 billion in revenue from DoD; and Cubic Corp. was 77th with $204.3 million.

POGO contacted these three corporations asking about their involvement in the From Battlefield to Boardroom program and recruiting practices in general, but all were unwilling to comment.

The conference has another networking element that may easily go under the radar: retired high-ranking military officers invited to participate include those already working in the private sector. Companies that send executives to the conference as participants are able to position themselves to recruit and network on a separate, more personal, level.  As co-participants, they are able to really get to know potential candidates during every step of the conference.  At the 2015 conference, there were five participants representing defense contractors: Nevin Carr, Vice President, AECOM Technology (Carr was recruited to Leidos after the conference); Edward Dryer, Vice President, Allison Transmission; Erwin Lessel, Director, Deloitte Consulting LLP; Clyde Moore, Executive Vice President, Dayton Aerospace; and Charles Wald, Vice President, Deloitte, Services LP.

From Battlefield to Boardroom’s Steering Committee also embodies the program’s emphasis on encouraging public to private movement. Four out of the ten external members—who make strategic decisions about the conference, including creating the conference’s curriculum—represent interests of several defense contractors: Sodexo, Polycom, ViaSystems Technologies, L-3 Communications, and Textron. Two committee members, Gen. James Conway and Gen. Henry Hugh Shelton, are worth highlighting. Both attained among the highest ranks in the military before retiring and joining the board of powerful defense contractors. Conway retired as Commandant of the Marine Corps and joined Textron’s Board of Directors; Shelton retired not only an Army general but also as the Chairman of the Joint Chiefs of Staff and joined L-3 Communication’s Board.

The revolving door between the DoD and the private sector is well-documented. A Freedom of Information Act request by Citizens for Responsibility and Ethics in Washington (CREW) found that between January 2012 to May 2013, 379 defense officials had requested ethics opinions before leaving the Department for the private sector. Of those, 84 percent already had an employer in mind, with many planning to work for defense contractors. Though not technically illegal (aside from certain restrictions), From Battlefield to Boardroom seems to accelerate and facilitate the defense revolving door, increasing the likelihood of conflict of interests and unethical and wasteful policy decisions.

Since 2011 NACD’s conference has essentially become a recruiting fair to match exiting military officers with private companies looking to hire new leadership. Though the program claims to provide guidance through a speaker series and small group discussions on how the high-ranking service members can employ their leadership skills in post-military life, there seems to be the underlying priority of strengthening the relationship between the private and public sectors—facilitating the revolving door.

One-third of the two-day program is dedicated to networking, including six 15-minute networking breaks, two networking lunches, and one networking cocktail gathering. With the abundance of executives and board members in attendance, these frequent networking opportunities turn the conference into the perfect marketplace for contractors to snatch up the next generation of connections to the Pentagon. If retired or soon-to-be retired officers are unsuccessful at being directly recruited at the conference, the NACD program offers a free year-long membership in the NACD’s Director’s Registry to “precisely” match boards with their “ideal” candidate.”

http://www.pogo.org/blog/2015/07/from-battlefield-to-boardroom.html

Record US Weapons Sales to Foreign Countries – $1.6 Billion in Lockheed Martin Missiles Alone

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Lockheed Martin PAC-3 Missile

“DOD BUZZ”

“Lockheed Martin Corp., the world’s largest defense contractor, won a $1.6 billion contract from the U.S. Army to supply Patriot missiles to governments in the Middle East and Asia.

The U.S. Army had a record year in 2014 for foreign military sales, with rising demand in the Middle East and elsewhere for such weapons systems as Apache attack helicopters, as well as Patriot and Javelin missiles.

In a so-called Foreign Military Sale, or FMS, the U.S. buys weapons or equipment on behalf of a foreign government. Countries approved to participate in the program may obtain military hardware or services by using their own funding or money provided through U.S.-sponsored assistance programs.

The United States Army Security Assistance Command in the fiscal year ending Sept. 30 had a “significant increase” to 719 cases, or instances, of such sales worth a total of $21 billion, Gen. Dennis Via, the head of Army Materiel Command, said last fall.

Via singled out as popular weapons systems the AH-64 Apache gunship made by Boeing Co., the MIM-104 Patriottruck-mounted missile-defense system made by Raytheon Co., and the FGM-148 Javelin shoulder-launched missile system made by Raytheon and Lockheed.

“Our allies want U.S.-made equipment,” he said at the time. “They trust that equipment. They trust when we establish an FMS agreement with them that they’re going to see a quality product, they’re going to see the sustainment and training behind that product.”

http://www.dodbuzz.com/2015/07/24/lockheed-lands-1-6-billion-deal-for-pac-3-missiles-abroad/

Raytheon Makes $1.9Billion Cyber Statement With Websense Acquisition

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Bitcoinnot bombs dot comWebsemse dot com
“WASHINGTON TECHNOLOGY”

“Raytheon’s $1.9 billion acquisition of Websense is more than just a large government contractor making a move to bolster its cyber capabilities.

Raytheon is making a huge investment because it thinks it can do what so many other government contractors have failed to do – build a commercial business.

The deal for the privately held Websense is expected to close by the end of June.

Here are some interesting facts about the deal:

Websense, Austin, Texas

Core cyber capabilities: Threat intelligence, mobile security, data loss prevention, web security and email security. Threat intelligence and mobile security overlap with current Raytheon capabilities in those areas. Raytheon also adds insider threat analysis and advanced threat protection capabilities.

Key cyber products: Triton unified content security solution from Websense and Raytheon’s Sureview software suite.

Websense: 1,500 employees; 21,000 customers; 2,200 partners in 155 countries

58 percent of Websense revenue is in the Americas, and 11 percent from government customers. Other core markets include finance, services, manufacturing and business services.

Raytheon’s investment:

  • Cash: $1.3 billion
  • Loan: $600 million
  • Raytheon Cyber Products: $400 million value

Combined enterprise value: $2.3 billion ($1.7 billion of equity and $600 million loan.)

Vista’s investment: $335 million in cash for a 19.7 percent stake of $1.7 billion in equity value.

Government contractors, and defense firms in particular, are infamous for their lack of success in building substantial commercial businesses. But cyber is an area where many see a convergence of needs that apply across the commercial and government customers.

We’ve seen several government contractors buy commercial cyber businesses. The idea is usually two-fold: acquire new capabilities for their government customers and find new commercial customers for their current cyber capabilities. The classic cross-selling strategy.

But more recently, we’ve also seen Boeing, SAIC and General Dynamics sell off commercial cyber businesses that they acquired earlier this decade. They aren’t souring on cyber, but they came to realize serving the commercial market strays from their core government market capabilities. GD sold its commercial cyber business, Fidelis, just last week. Boeing and SAIC made their divestitures of Narus and Cloudshield, respectively, earlier this year.

“Fidelis serves a commercial customer base, not in our core, and is better served with a commercially focused owner,” GD spokeswoman Lucy Ryan told me.

Raytheon has probably been one of the more aggressive acquirers in the cyber space in recent years. Last year, it spent $420 million to buy Blackbird Technologies.

But what really stands out to me is the structure of this acquisition, and the structure might be the difference maker.

Websense will not become a division of Raytheon, but instead will be a joint venture that merges Websense and Raytheon Cyber Products into a new entity. Websense CEO John McCormack will lead the business. It’ll have its own board of directors and it’ll be separately reported as a Raytheon business segment.

Vista, the private equity firm that owns Websense, also is making a $335 million investment to be the minority partner in the joint venture with Raytheon. They’ll have a 19.7 percent ownership interest.

“Raytheon has found a unique structure through a JV that allows both entities to leverage their strong positions in their respective markets to grow Raytheon’s cyber practice,” said John Song, with the investment bank Houlihan Lokey.

Others agreed.

“The structure of the transaction, as a joint venture between Raytheon and Vista Equity Partners, should help preserve the commercial culture of Websense’s sales and development teams,” said Philip McMann, of the investment bank Aronson Capital Partners.

Raytheon also gains access to threat intelligence through Websense’s commercial and international sales channels, he said.

The unique structure will gives Raytheon some cover on Wall Street, where investors may not have rewarded a transaction that has such a high ratio of price to revenue. For example, the ratio is four to five times Websenses’ revenue; in other words, Raytheon is paying $4 to $5 for every $1 of Websense revenue.

But Vista staying on board as a partner in the joint venture gives the deal a sort of seal of approval, a source told me.

This source thinks that Raytheon isn’t finished making cyber acquisitions, and that the joint venture structure and Vista’s partnership might make it easier for the company to move more quickly and aggressively on acquisitions.

I’ll be curious if this transaction pressures Raytheon’s competitors make bolder moves, but as several sources told me, even the companies that have made divestitures are only shedding their commercial businesses so that they can keep their focus on the government market.

Cyber will continue to be an important area of investment and competition among these companies, but what we are seeing are companies trying to figure out what works best for them.

“The large firms are clearly re-evaluating the right ownership, branding and operating structure for their cyber investments, said Bob Kipps, of the investment bank Kipps DeSanto.”

http://washingtontechnology.com/blogs/editors-notebook/2015/04/raytheon-websense-deal.aspx

Raytheon Image:  Bitcoinnotbombs.com    Websense Image: Websense.com

U.S. Missile Defense Agency – $10 Billion in Projects – All Canceled or Shelved

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10B Bet Gone Bad

Sea-Based X-Band Radar — SBX for short

“LA TIMES”

“Expensive missteps have become a trademark of the Missile Defense Agency, an arm of the Pentagon charged with protecting U.S. troops and ships and the American homeland.

Over the last decade, the agency has sunk nearly $10 billion into SBX and three other programs that had to be killed or sidelined after they proved unworkable

SBX was supposed to be operational by 2005.

Instead, it spends most of the year mothballed at Pearl Harbor in Hawaii. The project not only wasted taxpayer money but left a hole in the nation’s defenses. The money spent on it could have gone toward land-based radars with a greater capability to track long-range missiles, according to experts who have studied the issue.

Leaders of the U.S. Missile Defense Agency were effusive about the new technology. It was the most powerful radar of its kind in the world, they told Congress. So powerful it could detect a baseball over San Francisco from the other side of the country. If North Korea launched a sneak attack, the Sea-Based X-Band Radar — SBX for short — would spot the incoming missiles, track them through space and guide U.S. rocket-interceptors to destroy them.

Crucially, the system would be able to distinguish between actual missiles and decoys. SBX “represents a capability that is unmatched,” the director of the Missile Defense Agency told a Senate subcommittee in 2007.

In reality, the giant floating radar has been a $2.2-billion flop, a Los Angeles Times investigation found. Although it can powerfully magnify distant objects, its field of vision is so narrow that it would be of little use against what experts consider the likeliest attack: a stream of missiles interspersed with decoys.

“You can spend an awful lot of money and end up with nothing,” said Mike Corbett, a retired Air Force colonel who oversaw the agency’s contracting for weapons systems from 2006 to 2009. “MDA spent billions and billions on these programs that didn’t lead anywhere.”

The four ill-fated programs were all intended to address a key vulnerability in U.S. defenses: If an enemy launched decoys along with real missiles, U.S. radars could be fooled, causing rocket-interceptors to be fired at the wrong objects — and increasing the risk that actual warheads would slip through. In addition to SBX, the programs were:

The Airborne Laser, envisioned as a fleet of converted Boeing 747s that would fire laser beams to destroy enemy missiles soon after launch, before they could release decoys. It turned out that the lasers could not be fired over sufficient distances, so the planes would have to fly within or near an enemy’s borders continuously. That would leave the 747s all but defenseless against antiaircraft missiles. The program was canceled in 2012, after a decade of testing. The cost: $5.3 billion.
The Kinetic Energy Interceptor, a rocket designed to be fired from land or sea to destroy enemy missiles during their early stage of flight. The interceptor was too long to fit on Navy ships, and on land, it would have to be positioned so close to its target that it would be vulnerable to attack. The program was killed in 2009, after six years of development. The cost: $1.7 billion.
The Multiple Kill Vehicle, a cluster of miniature interceptors that would destroy enemy missiles along with any decoys. In 2007 and 2008, the Missile Defense Agency trumpeted it as a “transformational program” and a cost-effective “force multiplier.” After four years of development, the agency’s contractors had not conducted a single test flight, and the program was shelved. The cost: nearly $700 million.

These expensive flops stem in part from a climate of anxiety after Sept. 11, 2001, heightened by warnings from defense hawks that North Korea and Iran were close to developing long-range missiles capable of reaching the United States.

President George W. Bush, in 2002, ordered an urgent effort to field a homeland missile defense system within two years. In their rush to make that deadline, Missile Defense Agency officials latched onto exotic, unproven concepts without doing a rigorous analysis of their cost and feasibility. Members of Congress whose states and districts benefited from the spending tenaciously defended the programs, even after their deficiencies became evident.

These conclusions emerge from a review of thousands of pages of expert reports, congressional testimony and other government records, along with interviews with dozens of aerospace and military affairs specialists. “The management of the organization is one of technologists in their hobby shop,” said L. David Montague, a former president of missile systems for Lockheed Corp. and co-chairman of a National Academy of Sciences-sponsored review of the agency. “They don’t know the nitty-gritty of what it takes to make something work.” This leads, he said, to programs that “defy the limits of physics and economic logic.” Of the SBX radar, Montague said: “It should never have been built.”

Retired Air Force Gen. Eugene E. Habiger, former head of the U.S. Strategic Command and a member of the National Academy panel, said the agency’s blunders reflected a failure to analyze alternatives or seek independent cost estimates. “They are totally off in la-la land,” Habiger said.”

http://graphics.latimes.com/missile-defense/#radardud

Compelling Proof Large Defense Contractors Are Sheltered from Cuts and Pay Little in Taxes

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“PUBLIC INTELLIGENCE.NET”

defense-tax-evaders“NATIONAL DEFENSE MAGAZINE”

“Defense Department contract obligations dropped by 16 percent to $314 billion from 2012 to 2013, a decline four times as steep as was seen from 2009 to 2012, a CSIS study estimated. From 2012 to 2013, contracts for the Pentagon’s top six contractors — Lockheed Martin, Boeing, Raytheon, General Dynamics, Northrop Grumman and L-3 Communications — dropped by 9 percent. For everyone else, they fell by 19 percent.

The report provides overwhelming evidence that the sequester, which was designed to cut government spending across the board, has affected contractors far more dramatically, Berteau said. Non-contract outlays, by comparison, remained mostly flat from 2012 to 2013, an indication that when budgets fall, federal agencies target contract spending as a measure of first resort. The study, conducted annually by CSIS, looks at contracting trends from 2000 to 2013 drawn from the Federal Procurement Data System.

“Contractors are paying the largest share of the impact of the decline,” Berteau said. As a percentage of total gross defense outlays, defense funded contract obligations have declined from 53 percent to 49 percent in 2013, the lowest share since 2002.

Berteau said the industry might not want to keep pretending that its defense sales have hit bottom and are going to come back up. World events and new contingencies such as the war on the Islamic State and the Ebola crisis might boost emergency spending, but will not immediately lead to a broad bipartisan agreement to increase the current caps on government discretionary spending, he added.

At the Defense Department, uncertainty and churn will continue to delay weapon modernization programs. “It is only going to get worse from a contractor point of view,” Berteau said. “I do no see the votes to change those caps any time soon.”

Many defense CEOs believed when sequester hit, that it would be a one-time event, that “Congress would come to its senses, that we’d get our money back in 2014, and the caps would be raised,” said Berteau.

A big warning signal for contractors is the precipitous fall in Defense Department research and development spending. R&D contract obligations dropped by 21 percent from 2012 to 2013, and by 39 percent from 2009 to 2013. The Army’s R&D contracts went down by 35 percent and the Air Force’s by 27 percent, compared to only 10 percent for the Navy.

These numbers show that the Pentagon, contrary to the official rhetoric, is paring back investments in advanced technology and modernization of the force, said CSIS analyst Greg Sanders, one of the authors of the study. After Congress passed the Budget Control Act and military spending took a dive, Defense Secretary Chuck Hagel called for a smaller, but more technologically advanced force. The data contradicts that vision, Sanders said.

As shown by impressive gains in stock prices over the past two year, large primes have pulled through the sequester better than small firms. The study provides compelling proof that the largest contractors are more sheltered from cuts. From 2012 to 2013, contracts for the Pentagon’s top six contractors — Lockheed Martin, Boeing, Raytheon, General Dynamics, Northrop Grumman and L-3 Communications — dropped by 9 percent. For everyone else, they fell by 19 percent.

The numbers in the CSIS study should not come as a surprise to industry investors, says analyst Byron Callan, of Capital Alpha Partners. “The data likely conforms to many investor perceptions of what’s happened in recent years,” he writes in a research note.

“Investors and analysts need to keep in mind that the data is for contracts — this is not the same as outlays,” he warns. Contract awards more closely track company orders while outlays are more closely related to sales. Of particular interest to investors, he says, is that foreign military sales contract obligations fell 20 percent between 2012 and 2013 — from $26 billion to $21 billion. “FMS should not have been impacted by sequestration, but the data is a bit surprising given general optimism surrounding international defense growth opportunities.”

http://www.nationaldefensemagazine.org/blog/Lists/Posts/Post.aspx?ID=1650