http://www.nytimes.com/2004/09/30/business/30contracts.html September 30, 2004 Pentagon Spends Without Bids, a Study Finds By LESLIE WAYNE
WASHINGTON, Sept. 29 - More than 40 percent of Pentagon business, a total of $362 billion, has been awarded on a no-bid basis over the last six years, according to a report issued Wednesday that showed that the biggest companies won the bulk of their contracts without going through a competitive process. The nation's largest military contractor, the Lockheed Martin Corporation, received the most Pentagon business on a noncompetitive basis. Seventy-four percent of Lockheed's $94 billion in Pentagon contracts received since fiscal 1998 was awarded without competition, according to the report, which was written by the Center for Public Integrity, a Washington nonprofit group that studied 2.2 million Pentagon contracts worth a collective $900 billion. "Competitive bidding at the Pentagon happens less often than we think, and the no-bid controversy surrounding Halliburton in Iraq actually is, unfortunately, not an aberration," said Charles Lewis, the center's executive director. Mr. Lewis's organization was one of the first to study contracts won by Halliburton and other companies in Iraq and Afghanistan, and today's report grew out of that earlier work. At Boeing, the nation's second-largest contractor, 60 percent of the $81 billion in Pentagon contracts since 1998 was awarded without competition, as was 67 percent at the No. 3 contractor, the Raytheon Company, which received $40 billion in contracts over the same period. Of the nation's top 10 military contractors, 9 won more than half of their Pentagon contract dollars through noncompetitive awards. Thomas C. Greer, a Lockheed spokesman, said that because of "the substantial investment and lengthy development cycles, followed by limited annual production quantities," competitive bidding for Pentagon contracts is often not cost effective. Nevertheless, "It is important to note that sole-source awards still mandate contractor performance," Mr. Greer said. In addition, the report said that because of military industry consolidation, 80 percent of all Pentagon contracting dollars were won by the top 1 percent of all contractors over the six-year period, which ran from Oct. 1, 1997, to Sept. 30, 2003. The report found that the Pentagon has become increasingly dependent on military contractors for work that had been done by soldiers and Pentagon civilian employees. Currently, for instance, half of the military budget is outsourced to contractors, while oversight of these contracts has declined, the report said. The Pentagon has reduced the number of government officials who supervise contractors, instead hiring contractors to oversee and manage others, according to the report. The Pentagon hired a contractor to determine how many contractors it had employed, the report said. "There is an even more fundamental problem underscoring our entire investigation: the stunning lack of accountability," said Mr. Lewis. "This is a Keystone Kop situation where no one is monitoring the monitors. This is a very serious situation, and the Pentagon is treating it like a hair in the soup." Glenn Flood, a Pentagon spokesman, said that the center's "accusations have been made before." Mr. Flood said that much of the Pentagon's business is so specialized that it is impossible to find more than one supplier. Industry consolidation has also accelerated the noncompetitive trend, he said. "Where do you go if you want or need a sub or a joint-strike fighter?" said Mr. Flood. "The mergers of the 1980's have taken their toll. You have only five or six major contractors. Where do you go?" But the center's report said that the great growth in outsourcing is taking place in providing services, not in the production of weapon systems. This includes items like the interrogations at Abu Ghraib prison in Baghdad, helping to write the Bush administration's military budget and devising strategic plans. At the same time, military contractors have become skilled at Washington politics and in providing jobs for Pentagon officials after they leave the government. The leading recipient of campaign donations from military contractors has been President Bush, with $5.4 million from the industry since 1998. Military contractors, however, began stepping up contributions to Senator John Kerry after he won the Iowa caucuses, the report said. Before the caucuses, Senator Kerry had received $332,000 from the industry. He has received just under $2 million since then. The Republican Party has received $62 million from the industry since 1998, compared to $24 million for the Democratic Party, according to the report. Richard L. Aboulafia, a military industry analyst at the Teal Group, a consulting firm in Fairfax, Va., said that Pentagon outsourcing is often neither the cheapest nor the most efficient approach. "I think it is a time for a comprehensive rethink of this trend," Mr. Aboulafia said. "A lot of it is done to produce short-term numbers that reduce the size of government, and that always is pleasing to voters. But I'm not sure it's the best strategic decision. There's a terrific emphasis on cutting the numbers, and to do that, you need outsourcing to make the numbers look good. But how much of that is just window dressing?"
