Sen. Elizabeth Warren (D-MA) is questioning the Defense Department's push to provide inflation relief to defense contractors, sending a new letter to Pentagon acquisition chief Bill LaPlante voicing concern that DOD may be preparing to dish out "corporate welfare" without sufficient data to justify the cost.
Warren says she is specifically concerned about DOD efforts afoot to potentially modify firm, fixed-price contracts to provide greater payments to defense contractors facing inflation-related costs.
“There are too many instances where major defense companies made tens of millions, and my office has been made aware of instances of hundreds of millions of dollars in excess profit on individual firm, fixed-price contracts,” she wrote. “I have not seen, however, any instances where industry associations suggested those excess profits be returned to the warfighter and taxpayers. I urge you to make sure DOD’s future policies don’t further exacerbate this kind of price gouging.”
Warren has also sent a separate letter to the National Defense Industrial Association saying senior leaders who authored a white paper advocating for increased defense spending to aid contractors squeezed by historic inflation “appear to have violated post-government ethics restrictions that prohibit you from lobbying or attempting to influence the Department of Defense.”
NDIA denies that any of its officials violated their post-government employment restrictions.
Meanwhile, Warren tells LaPlante that DOD should not be offering “corporate welfare” to defense contractors who have agreed to firm, fixed-price arrangements.
“The simple fact of the matter is that DOD contractors -- like all contractors -- agreed to provide goods and services to DOD for the contractual rate,” she said. “None of these companies offer, nor does DOD request, refunds when a program comes in under budget. These are private-sector entities that competed for and voluntarily chose to engage in these agreements -- and they should not be bailed out with corporate welfare simply because their profits are lower than anticipated.”
Defense and industry officials, meanwhile, argue that it would increase the risk to national security if critical contractors in the U.S. military supply chain were to go bankrupt or exit the defense business altogether.
Warren said she understands DOD’s “well-intentioned” policies to support vulnerable suppliers but remains concerned that cash will flow toward the largest defense contractors with the healthiest bottom lines.
“I particularly urge DOD to be circumspect about the industry’s claims about the impact of inflation given their second quarter profits, which show operating incomes that increased over the last quarter and average 11.7%, suggesting there was little or no adverse impact due to inflation,” she said.
Warren asserts any companies requesting price adjustments “must meet the stringent criteria” established under the law and “should be required to provide certified cost or pricing data to contracting officers to justify any requested adjustment.”
“Without this information, including certified cost or pricing data, DOD cannot protect taxpayers from industry profiteering,” she said.
The Pentagon did not immediately respond to a request for comment.
Warren, however, says she wants LaPlante to respond to her letter by Oct. 21 with information regarding what data and analysis DOD is using to consider increasing contract prices due to inflation.
Warren questions NDIA’s role
Warren, in her letter to NDIA President and Chief Executive Officer David Norquist, said she is concerned he and another NDIA official may have engaged in post-government employment violations that bar them from lobbying DOD. NDIA, however, is not classified as a lobbying organization but as an educational non-profit entity, or a 501 (c)(3).
But Norquist served as deputy defense secretary from July 31, 2019, until February 9, 2021, and is subject to a number of “cooling-off” bans when it comes to interacting with government officials.
Warren said she is also concerned NDIA senior fellow John Whitley, another former DOD official who co-authored an NDIA white paper with Norquist that advocates for increased defense spending, may have also violated post-government employment restrictions.
Scott Rekdal, a spokesman for NDIA, said in a statement to Inside Defense that both Norquist and Whitley are in “full compliance with the letter and intent of their post-government employment restrictions.”
“The ‘How Inflation Hurts America’s National Defense and What We Can Do About It’ report referenced in the senator's letter was developed by a bipartisan team of experienced former defense officials to inform Congress of the potential destructive impact inflation is having on our national security,” Rekdal said. “Thoughtful engagement with members of Congress on leading public policy debates impacting our defense industrial base is part of the mission of NDIA and is clearly in the best interest of the nation.”
Warren also said she is concerned that Norquist and Whitley may have potentially violated their post-government restrictions by participating in a meeting between DOD and industry association officials to discuss inflation-related challenges. Rekdal, however, said neither Norquist nor Whitley attended that meeting.
Meanwhile, the defense industry has thrown its support behind a new amendment to the Senate's version of the annual defense authorization bill that would allow the Pentagon to modify existing contracts to grant inflation relief to contractors.
The amendment, being offered by Sen. Kevin Cramer (R-ND), would give DOD authority to provide contractors with an “economic price adjustment” even in the case of firm, fixed-price contracts.
Eric Fanning, the president and chief executive of the Aerospace Industries Association, said in a statement that companies require contract flexibility to mitigate soaring costs stemming from record-high inflation.
“Inflation is running at more than double the rate anticipated when most contracts were negotiated,” he said. “With limited tools at their disposal to manage increasing costs and maintain their workforce, many companies, especially small businesses, may choose to leave the defense industrial base entirely. The result would be significant harm to our national security and our ability to surge to meet demand.”
The Pentagon issued a Sept. 9 memo saying contract officers should be open to considering inflation relief for companies working under firm, fixed-price contracts in "extraordinary circumstances.”