Does Competitive Defense Contracting Make Sense?

June 14, 2013 defense-aerospace.com

(Source: Lexington Institute; issued June 13, 2013)

Competitive Defense Contracting: When It Makes Sense (and When It Doesn't)

Competition has become the mantra of the Department of Defense’s (DoD) acquisition corps. The Under Secretary of Defense for Acquisition, Technology & Logistics, Mr. Frank Kendall has gone on record saying “I think that nothing, nothing, works better than competition to drive cost down.” DoD has established metrics for competition, sort of like a quota system. Many more prime contracts are being competed. The idea is to the greatest extent possible to replicate the commercial marketplace.

Unfortunately, the defense marketplace does not resemble the ideal free market where competition produces optimal market efficiency. Indeed, there are reasons to believe that the competition goals set by DoD and the policies implemented to encourage competition are not contributing to acquisition cost savings. A recent study of the defense industrial base by the Center for Strategic and Budgetary Assessments concluded that efforts to increase competition based on the presumption “that the defense industry operates like a normal free market is not only unlikely to improve efficiency, but have often made things worse.”

The defense sector is really a state monopoly and should be treated as such. There are approaches to improving performance and reducing costs such as performance-based contracts. But to pretend that this sector can be a mirror of the commercial marketplace is wrong and ultimately counterproductive to the goals of reducing costs for defense goods.

There is a natural place for competition in the defense marketplace. In the early phases of a major program – concept definition, technology development and risk reduction – there is value in competition. DoD has experimented with continuing a second contractor through later program stages, including into full-rate production, with mixed results. Also, there are a range of goods and services that are commoditized and can be treated the same in the defense market as they are in the commercial world. Hence, the defense customer can use competition to achieve reduced price for a specified level of performance. This kind of competition is inherent in the products themselves and in their use. It is natural.

But for platforms, major weapons systems and networks, products that are likely to be in the force for decades and undergo repeated upgrades, certainty, reliability, quality and effectiveness must be the considered. Beyond a rather obvious point, competition for this set of goods and services is not natural but forced.

Click here to download the full study as PDF (24 pages)