Senate Armed Services Committee Chairman Jack Reed (D-RI) today cited increased merger and acquisition activity among large defense contractors as a key challenge to reforming Pentagon acquisition.
Reed, speaking at an Aspen Institute event in Washington, said years of consolidation in the defense industrial base have hurt innovation and driven up the costs of weapon systems.
"We've seen the contractor base shrink through mergers and acquisitions," he said. "There are two entities that build submarines. There are specialized entities that will build fighter aircraft, there are others that will build bombers. We're losing, I think, some of the dexterity we had in previous years. Just being able to go out and make these systems more economic for the government and allow for more innovation."
Reed lamented how consolidation has made it more difficult for the Defense Department to use competition to bring down costs.
Meanwhile, Lockheed Martin executives last week predicted a $4.4 billion acquisition of Aerojet Rocketdyne is expected to close in the first quarter of 2022, one quarter later than previously expected. Raytheon Technologies, based in Waltham, MA, objects to the deal and Sen. Elizabeth Warren (D-MA) has asked the Federal Securities and Exchange Commission to investigate. Other lawmakers, meanwhile, support the deal. Raytheon completed a merger with United Technologies earlier this year.
Reed also said the Pentagon acquisition process, along with being infamously bureaucratic, has maybe become "overly reliant" on defense contractors.
For instance, he said, the design and planning of U.S. ships was once the purview of Naval Sea Systems Command. Now, he said, that work is done at shipyards run by contractors.
"NAVSEA is diminished, now the contractors have all this," he said. "We're seeing a lot of systems that are very expensive."
In May 2019, the Government Accountability Office noted that “portfolio-wide cost growth has occurred in an environment where awards are often made without full and open competition.”
Reed said he is trying to get approval for the fiscal year 2022 defense authorization bill, which is stalled in the Senate.
The bill, he said, would, among other things, give the military services "legislative leverage" to increase prototyping and experimentation that could potentially help more programs cross the "Valley of Death" between development and fielding.
"We've got a long way to go," he said. "We recognize we need to simplify the process. We also need to be able to reach out to small, innovative companies."
Reed, who is also a member of the Senate Appropriations Committee, talked about tension between authorizers and appropriators when it comes to trying to inject greater flexibility into Pentagon acquisition.
"Authorizers, I think, would be much more comfortable by giving discretion to the acquisition authorities in terms of the amount of money they can deploy without all of the elaborate" process, he said. "The appropriators, and I am guilty of being an appropriator, are much less concerned because they see their role to the taxpayer as making sure how every nickel is spent. I think there is room to grow that flexibility."
Reed also said lawmakers need to support the creation of a new culture in defense acquisition where there is greater freedom to fail.
"It's OK to fail as long as we learn something from it," he said. "The evaluation is not did you cross the finish line, but what have we learned and can we use that. Right now, I don't think that's the culture but that's something we have to build."