Missile Defense corruption
Filed under: Alabama, Alaska, Congress, MDA, S&T, SMDC, U.S. Army, crime, development program, missile defense
Last year the US Government arrested two employees of the US Army’s Space and Missile Defense Command (SMDC) on charges that they were taking bribes to steer contracts to selected companies. Now the New York Times has done some further research on the issue and have found out that the main figure, the head of SMDC S&T center, had created a whole scheme to make Congress fund a large test program that would then be self-perpetuating. As part of this he broke Federal law by lobbying Congress directly.
The scheme he concocted was one that when I worked supporting the Ballistic Missile Defense Organization (BMDO), now Missile Defense Agency (MDA), never made much sense to me. The MDA had an issue with testing the systems against long range targets. They targets required could not be tested in the United States as there was no range big enough to hold them. The Navy invested in improving their range on the West Coast of Kuaii in Hawaii that faced a broad open area. Targets would be air launched and fired into the range. The Army looked at building a launch facility on Midway to fire that targets at their main range in Kwajalien. The gentlemen at the core of the scandal, Mr. Cantrell, worked a proposal directly with Congress and various contractors to build a facility in Alaska on Kodiak Island and then use an old Navy helicopter carrier to fire the targets at Kodiak. This never really made sense due to its cost and the creation of all new facilities and modifying the ship at some cost.
Ultimately the idea went nowhere, although a launch facility has been built at Kodiak which supports Air Force operations right now. MDA made the sensible decision to begin testing US Army systems in Hawaii using the range there. Now that it turns out the Mr. Cantrell and various Senators using the earmark system was doing this for personal gain.
See an article in the Huntsville Times here.
Good overview on Federal contracting to researchers
Filed under: Congress, Federal Budget Process, S&T, development program
While most people think of Defense when it comes to contracting as that dominates the headlines, the Federal government hands out money for many things. Research is one of the areas that they buy a lot off. It discusses the difference between grant and contract research. The biggest is that with a contract the government is buying research on a specific problem. A grant funds more basic research.
For more on this the Chronicle of Higher Education.
McCain’s contracting proposal makes no sense
Filed under: Congress, Contract Awards, Department of Defense, Federal Budget Process, S&T, development program, production program
In the first Presidential Debate on Friday, Senator McCain restated one of his favorite reforms of government spending - require Firm Fixed Price (FFP) contracts for all work. Currently FFP contracts are used to buy hardware and services when the price and schedule are known. The contractor agrees to this as they will make profit on each unit sold. Cost Plus contracts are used for development or for things where the cost is not known. During World War II Cost Plus contracts were used almost exclusively and some abuse did occur. For R&D contracts it is hard to do a FFP as the total time and cost required to develop a system or new capability has often proved to be beyond the estimation capability of the best government or contractors can do. Senator McCain’s proposal will not work, as you will have a situation where no one will bid on the work as they know they won’t make any money on it.
See FCW.com for the story.
House passes Defense Appropriation Bill
Filed under: Congress, Department of Defense, Editorial, Federal Budget Process, development program, production program
The House of Representatives approved the Defense Appropriations Bill as part of a larger spending law this afternoon. The bill fully funds all of the services as well as providing funding for a variety of other government actions, including a loan of $25 B for the US automakers. Now the Senate needs to approve the bill and a Conference one be worked out to be re-approved by the two parts of the legislature. Until the actual text of the report is read funding for specific programs cannot be identified.
For more on this story see CNNMoney.com.
Bush administration rushing to complete overseas sales
Filed under: Congress, Contract Awards, Department of Defense, FMS, Federal Budget Process, Military Aviation, Proposal, logistics
According to an article in the International Herald Tribune; the Bush administration is moving quickly to ok deals for foriegn partners on US weapon systems. The Pentagon plays a role in organizing and having Congress approve these deals. There has been a rash of equipment for Iraq and Afghanistan lately as well for former Soviet and Eastern Europe states. This is seen as building good will with them, as well as counteracting other nation’s attempts to sell weapons. The deals also help out US contractors.
See the article here.
Reports that UAE to buy THAAD system
Filed under: Congress, Contract Awards, Department of Defense, FMS, Lockheed Martin, Raytheon, UAE, missile defense, production program
Update - I was wrong in my original surmising that the UAE would buy PATRIOT. They are going whole hog and asking for THAAD. THAAD is a much more expensive, long range ballistic missile defense system. The US Army has not formally fielded it yet. That would explain the high price tag. Rueters report here.
Rueters is reporting that the US Department of Defense will inform Congress that the UAE has asked to purchase a PATRIOT missile system. The estimated cost is $7 B. This would be to provide missile defense against Iranian systems. Congress must approve the sale, normally this is a formality, although it can be more complicated for advanced systems. Obviously such a large contract will be a boon to Raytheon and Lockheed Martin.
The article is here.
Small business prospers
Filed under: Akimeka Technologies, Congress, Contract Awards, Federal Budget Process, IT, SETA
This article from Hawaii describes how a small, minority owned business is prospering under DoD contracting rules. Most agencies and large contracts are required to share the work among small, disadvantaged business by Federal law and regulation. Here, Akimeka Technologies, a Hawaiian company, that provides IT services benefits from those rules. Larger companies will team with it to cross off that requirement, or they have a step-up in bidding on work due to their status. Of course they need to be able to do the work required, but many companies get a start like this due to the targeted efforts of the DoD.
For more see the article on Pacific Business News.
Preparing for the downturn
Filed under: Congress, Department of Defense, Federal Budget Process, IT, Massachusetts, Raytheon, S&T, development program, missile defense, production program
The Boston Herald writes today about how the various defense companies in Massachusetts are planning for the expected cuts in the defense budget with the end of the fighting in Iraq. While it is certainly expected that the US defense budget will decline beginning in FY09 with either a Republican or Democrat administration, it will probably be slow. The biggest shift will be away from Operations & Maintenance (O&M) funding to more new systems. It will also be interesting to see if the Army and Marines will get smaller after several years of growth. Obviously the biggest player in Massachusetts is Raytheon, they may be cushioned a bit, as they tend to make high-tech weapon and C4ISR systems.
For more see the article “Massachusetts companies brace for wind down in Iraq”.
Congress approved reprogramming for ISR
Filed under: Congress, Department of Defense, Federal Budget Process, IT, Military Aviation, Restructuring, U.S. Army, production program
DoD reported that all four of the appropriate defense committees approved the reprogramming for ISR assets. See a story here. The transaction will move $1.3 B from various Army, Navy and Air Force procurement programs to buy various systems to support current operations in Iraq and Afghanistan. The focus of the money will be UAVs and their support systems. The majority of the money came from Army tactical wheeled vehicles and some communications systems.
House marks appropriations bill
Filed under: Bell, Boeing, Congress, Contract Awards, EADS, Federal Budget Process, Military Aviation, Northrop Grumman Corp., development program, logistics, production program
The House Appropriations Committee marked the FY09 budget before taking their August recess. See a story here. The Army’s struggling Armed Reconnaissance Helicopter (ARH) program was marked to delete 13 aircraft, and the Navy’s Presidential Helo was also decremented. The House also ordered that consideration of jobs would be a criteria for the source selection of the KC-45 tanker. Boeing won its protest of the award to Northrop-Grumman and EADS and forced DoD to reconsider the contract. The Senate needs to also mark the bill and then there will be a Conference mark up as well.
Congress protests DDG-100 cancellation
Filed under: Congress, Federal Budget Process, General Dynamics, Maine, Massachusetts, Northrop Grumman Corp., Restructuring, U.S. Navy, development program, production program
Recently the US Navy announced that it was not going to continue the DDG-100 program. Two ships are under construction by Northrop-Grumman and General Dynamics. Not unexpectedly the Senators from the affected states, mainly Massachusetts and Maine, have protested. See an article here. The major recent the Navy cites is the continued cost growth of the program. The first two were projected at under $4 B each, but now the estimates are over $5.5 B. Other than the shipbuilders, Raytheon is the most affected company as it was building the combat system of sensors for the ship. The Navy intends to continue production of the DDG-51 class instead. Read more
BRAC money flows to Huntsville
Filed under: BL Harbert International, BRAC, Congress, Contract Awards, Federal Budget Process, U.S. Army, logistics
B.L. Harbert International won the contract to build two new building complexes at Redstone Arsenal (RSA) as part of the last round of BRAC moves. See a press release here. BRAC was good to RSA as it moved the headquarters of the US Army Material Command (AMC) and the US Army Security Assistance Command (USACA) to the base. AMC is responsible for buying, fielding and supporting most of the Army’s material. USACA helps transfer US weapons to foreign countries. The $100 M plus contract will build the necessary buildings to house the commands.
GAO states the obvious again
Filed under: Congress, Federal Budget Process, GAO, production program
The GAO released a report stating that in their rush to purchase Mine Resistant Ambush Protected (MRAP) vehicles the services may have set themselves up for some long term costs that were avoidable. See the story here. No kidding. The USMC and Army were thrown money and direction by Congress to purchase as many MRAP as possible and rush them into service. Do you think that there were some thought and steps in the contracting process that could have been more thorough? In the long term neither service wants the MRAP, which was a knee jerk reaction to the IED threat anyway. They are not very mobile or tactical and there will be issues in the future trying to transport them to whatever the next battlefield is.
Continued conflict good for US defense contractors
Filed under: Congress, Earnings, Federal Budget Process, IT, Military Aviation, Satellites, development program, logistics, missile defense, production program
CNNMoney has a preview of the upcoming earnings report for a variety of US defense contractors. See this for more. Not surprisingly the outlook is good. The US defense budget remains large and will probably not see any downturn until 2010 at the earliest depending on the US election. Rockwell Collins reported yesterday and they came in with 24% improvement over last quarter. See the press release here.
Army buys ammo for Afghanistan
Filed under: Allied Defense Group, Congress, Contract Awards, FMS, U.S. Army, afghanistan, logistics
Fresh off all of the problems with the contract let to AEY, the US has moved to a more traditional source for ammo for Afghanistan’s military and police. See the press release here. Allied Defense Group has been awarded a FMS contract to provide ammo. Allied has grown significantly over the last 7 years as the demand by the US for ammunition of all types, but especially small arms, has increased.
ARH in jeopardy
Filed under: Bell, Congress, Department of Defense, Federal Budget Process, Military Aviation, Restructuring, U.S. Army, development program
The soaring costs of the ARH program have caused a Nunn-McCurdy Cost Breach. See a story here. The 40% increase in unit cost has caused the Army and DoD to rethink, again, proceeding with the contract. Nunn-McCurdy cost breaches were established in the 80’s as part of the overall reform of Congressional monitoring of programs. Read more
Michigan economic development wars
Filed under: Congress, Contract Awards, Federal Budget Process, Michigan, development program, logistics, production program
As we have previously mentioned here and here Michigan has set up various entities to promote the state’s companies for defense contracts. According to this article though the head of the state organization is upset with one of the regional ones for not doing enough. The state hired a retired USMC general to run their organization and now he is raising a dispute over the efforts of one setup for the Western part of the state to the point where he wants to establish his own organization to do the work of the existing one. I guess when you are going out for Federal dollars no effort is wasted.
GAO to decide KC-45 protest soon
Filed under: Boeing, Congress, Contract Awards, EADS, Federal Budget Process, GAO, Military Aviation, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, logistics, production program
This article is a good summary of the KC-45 contract. The GAO is supposed to rule on Boeing’s protest within the next two weeks. One would have to bet that they will disallow the protest. There is a chance though, that somehow the Air Force screwed up in how they applied the criteria. Then the process would be reopened again, like the CSAR-X. The article also raises the issue of the US Presidential election. John McCain was the key person that got Boeing in trouble over the attempted lease deal five years ago, and Senator Obama represents the state where Boeing now has its headquarters. Congress has also held off weighing in while the protest wound its course. It is best to think that this is not over yet.
GAO continues to state the obvious
Filed under: Congress, Department of Defense, Federal Budget Process, GAO, development program, production program
The GAO testified again to Congress on how DoD acquisition programs are way behind schedule and way over budget. Imagine that? This has been a running refrain for the last forty years or so. One of the issues is that the government workforce managing these programs has gotten smaller while demands have increased over th e last six years. A further one is that the services don’t cooperate on requirements. Fixes have been proposed and implemented many times, but the biggest problems of requirements growth after initiation and relying on technology reaches never seems to go away.
Congress continues to make contracting difficult
Filed under: Boeing, Congress, Contract Awards, EADS, GAO, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, development program, logistics
The EU Ambassador to the United States (Who knew?) criticizes Congress for including a provision in the FY09 House Defense Authorization Bill that bars US contracts being awarded to companies accused of receiving illegal subsidies at the World Trade Organization (WTO). Of course they mean EADS who have just won the KC-45 contract. The Ambassador points out that if it is mearly the accusation then there is nothing stopping a US company from accusing its foreign competitor of having received these subsidies, even if they have not. It would make more sense to bar those convicted of this. EADS did receive these subsidies for a variety of programs. They claim they paid them back with interest. The WTO will rule later on this. As we have said many times before the Congress was the one who overturned a sole-source contract with Boeing for the new tanker and forced a competition.
DCAA friendly reminder
Filed under: Congress, Contract Awards, Federal Budget Process, Industry Analysis
The DCAA sent a memo out to remind contractors that the cost of lobbying members of Congress to get earmarks cannot be billed to the government. See the article here. I don’t know if this is something that is done regularly by the Defense Contract Audit Agency, or perhaps they found something in one of their audits, but it should be known to the defense industry. Read more
AP on protests
Filed under: Congress, Contract Awards, Department of Defense, GAO, Protest
This article nicely summarizes the situation with protests. In a follow-up to the earlier discussion by Secretary of Defense Gates this makes it seem that DoD is getting tired of companies protesting losses. Unfortunately as we have discussed previously there is nothing to lose for these companies. Business opportunities are limited and the only way to get around a loss is to protest. Of course it creates issues for the winner and DoD in executing what could be very critical programs for the US military. There will be more to come on this.
HASC to ask GAO to investigate protests
Filed under: Congress, Contract Awards, Editorial, Federal Budget Process, GAO, Protest
As part of their work on the defense budget the HASC is going to ask the GAO to investigate whether there are too many protests. See the story here. As we have previously discussed ad nauseum there is little disincentive for a losing contractor to protest. At the best they win, and the worst they lose but it takes little time and money to cut the necessary legal documents and fax them in. With the number of large contracts declining, and their worth growing, there will continue to be protests as the various contracts awarded. It has not just been for large development and procurement contracts, there have been protests of service ones as well. The GAO dismisses most of the protests as it takes a really big screw up by the acquisition and contract people to uphold them, but the delay the programs and cost the winner and the government time and money. Since the right to protest is pretty much part of Federal contract law it will be hard to change the number without changing that, unless the Congress wants to start punishing for frivolous protests. That is not common in American legal tradition, but we will see.
Finmeccanica follows through
Filed under: Acquisitions, Agusta Westland, Congress, DRS Technologies, Finemeccanica, IT, Italy, production program
Bump - Fresh off good financial reports for the quarter, EADS is now looking at DRS Technologies as well. See an article here. This makes it sound like DRS might be a good buy.
As rumored this weekend Finmeccanica bought DRS today. The deal is for around $5 B. See an article here. This is the biggest acquisition so far by an European company. DRS has been an attractive take over target for a few years, one of the reasons its stock was so high. If this deal can make it through the necessary regulatory and legal review it will be quite stunning. Prior to this BAE and EADS had been doing smaller acquisitions, under a $1B. In today’s political environment due to the KC-45 deal and it being an election year it should be interesting to see Congress’s reaction.
THe Guardian speaks the truth (and obvious)
Filed under: Acquisitions, Commentary, Congress, Contract Awards, Federal Budget Process, Protest
A nice article in the UK’s The Guardian paper, here, discusses how the trend in the US defense industry is mergers & acquisitions and protests. This as the article points out is a product of fewer, bigger contracts. Much of the increased defense budgets of the last 8 years have gone to personnel, operations and maintenance, and the reset of existing equipment. Very few large procurements have been ordered, in fact, many of the large programs are winding down such as the C-17 and F-22. The Navy also is buying less ships as they get more and more expensive and the DDG-51 class transitions to the LCS and a new destroyer. In the Clinton years you saw the same process but that was due to the decrease in budgets from the Reagan years leading to less work requiring less companies. Protests were common as there was only so much work to go around. Now it is the same in that once a contract is awarded there is little hope for another one for several years. Whether these trends accelerate with a new administration or not we will have to wait and see until Feb, 2009. It may be like in 1992 there will be two budgets submitted to Congress. One on time by the outgoing President and then an update in the summer.
