Not long after 9/11, the Air Force went looking for a new fleet of aircraft. The service drew up a plan to lease 100 aerial-refueling tankers from Boeing, saying it had an urgent need to replace its aging, Eisenhower-era KC-135 aircraft.
The Air Force planned to award a multibillion-dollar contract for a new tanker, based on the Boeing 767, as a “sole source” — meaning there would be no opportunity for a formal competition. The unusual lease-to-own deal would have cost the Defense Department approximately $37 billion, according to one government estimate.
But the tanker lease contract never went through. The deal derailed after it came to light that Darleen Druyun, a senior Air Force official involved with the tanker negotiations, had also conducted job talks with Boeing’s then–chief financial officer, breaking federal conflict-of-interest laws. Almost 10 years later, Boeing won the tanker contract — this time, in a full and open competition.
The nearly decade-long tanker battle is typically viewed as a fiasco. But taxpayers actually benefited from it. According to EADS, Boeing’s European rival, the competition saved the Air Force $16 billion by driving down Boeing’s offer price. The Air Force, for its part, says that it got a 20 percent cost reduction from Boeing by holding competition, which still places the savings in the billions of dollars.
But that’s still not the norm. As much as the Pentagon has recently gone on an “efficiencies” kick to cut its budgetary fat, public data shows that the Pentagon still isn’t awarding contracts through open competition more than it has in the past. In fact, the Pentagon’s “competed” contracts, based on dollar figures, fell to 55 percent in the first two quarters of 2011. Now that the Pentagon faces painful, deficit-induced budget cuts, it’s amazing that it isn’t trying to squeeze more cash for itself by the simple act of competition for its guns, planes and ships.
Not everyone agrees the numbers on their own are that damning. “The vast majority of the dollars on sole source contracts are simply follow-ons to large contracts,” said Jacques Gansler, who served as undersecretary of defense for acquisition, technology and logistics from 1997 to 2001. Gansler, now at the University of Maryland’s School of Public Affairs, says it’s important to look at the number of contracts competed, and not just at their dollar totals.
Maybe. But those numbers are even worse than they seem. Only 40 percent of all individual contract “actions” — which includes contracts and any contract modifications — were competed from 2008 to 2010.
That’s not to say Gansler thinks contracting is going swimmingly. He’s a critic of ”umbrella” contracts, which allow large amounts of diverse work to fall under one contract, like what are known as “indefinite delivery–indefinite quantity” contracts. Such contracts, now widespread, can end up costing the government more than bidding individual contracts, he said.
There are opportunities for increasing competition by breaking up large contracts for major weapons. Gansler argued, for example, that the Pentagon could have “re-competed” the tanker aircraft purchase every few years, rather than awarding the entire contract to Boeing, as an incentive to curb costs.
Other outside analysts are less charitable about the Pentagon’s record. There simply hasn’t been much improvement in the Pentagon’s record of competition, according to Steven Schooner, a professor of government-procurement law at George Washington University School of Law. He said any improvement, “slight as it may be,” doesn’t necessarily translate to meaningful competition.
While it’s hard to measure the costs of lost opportunities — tax dollars that would have been saved if contracts were competed openly — the congressionally established Commission on Wartime Contracting, whose report was released Wednesday, cited cases where there was clear evidence that opening contracts to multiple vendors saved money. In one example, an Army cost analyst told the commission in May 2010 that moving to LogCap IV, the successor to a huge logistics contract, was going to save 8.1 percent in costs. However, that same month, the Army announced it would extend the existing logistics contract with mega-contractor KBR, rather than moving work to LogCap IV, which would have put other contractors in the mix.
Competition helps in a lot of ways, ranging from price to quality, according to Scott Amey, general counsel for the Project on Government Oversight. “If you know somebody else can step in, it acts as an incentive for the incumbent to do good, because the next contract could be awarded to someone else,” he told Danger Room. “To play the skeptic, if you know no one else is out there, will the contractor be performing at 110 percent?”
For Charles Tiefer, a member of the Wartime Contracting Commission, the failure to instill more competition into Pentagon contracting is a series of disappointments that followed a promising beginning by the Obama administration. “At the time it looked very real,” said Tiefer. Obama “was saying the same things he said in his campaign.”
Yet despite memos from Obama in 2009 on increasing contract competition, and from the Pentagon acquisition chief in 2010 (.pdf), nothing appears to have changed. “It’s 2011 now. Where is it?” Tiefer asked. “Where’s the follow-up? Where’s the implementation? Where’s the policy?”
Photo: Department of Defense