William Hartung joins me on the Acquisition Talk podcast to discuss his book, Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex. In the episode, we discuss many of the defining moments of the defense industrial base, including: contract terms and cost overruns on the C-5A during the 1960s; the Lockheed bail out and international bribery scandals of the 1970s; the spare-parts pricing scandals of the 1980s, such as the $600 toilet seat; and the industry consolidation in the post-Cold War 1990s.
We also touch on how Congress gets involved in weapon systems decisions; why a dollar spent on the defense industry doesn’t produce as many jobs as investments in healthcare, education, and infrastructure; whether contractors can be considered specialists in government compliance; and much more.
Podcast annotations:
The C-5A was a heavy lift aircraft started in the mid-1960s by the Air Force. It tested out a new contracting scheme, the Total Procurement Package (TPP). Here is Bill discussing the old-style contracting scheme first, then the TPP:
Its simple form was, you get an R&D contract you finish that then you project what you think the aircraft or other weapon is going to cost. Part of the problem with that is that the company will get the R&D contract to develop the technology — they’d be part way in — then they feel like they have more leverage to charge whatever they chose for the procurement part because the government was already invested in them in a significant way.
So, one of McNamara’s “whiz kids” … decided we need a different approach. He came up with the TPP which basically was, right from the start we want an estimate of the full package. What’s the R&D going to cost? What’s the production going to cost? What are your milestones? What are the performance characteristics?
Then there would be consequences if the company didn’t meet that including fines of $125,000 a day, capped at $11 million. The person who developed this contract for McNamara called it the toughest contract ever entered into by the Pentagon.
But it had some loopholes…
The Fitzhugh Committee and the Commission on Government Procurement both pointed to the TPP as the source of persistent troubles for the C-5A, which Lockheed underbid on. Senator William Proxmire, however, did not. Proxmire criticized the C-5 program for severe cost overruns and performance defects, saying that it was acquired in a “scandalous way.” Despite his tough stance, Proxmire did not place blame with the TPP scheme. He said, “Would it have made any difference if the C-5A contract was written or awarded differently? I don’t think so.”
Ernest Fitzgerald was an Air Force analyst who used C/SCSC data (today Earned Value Management) to blow the whistle on the C-5A cost growth. But by that time it was too late. Here is Bill:
Ernie Fitzgerald said there’s only two times to kill a program. Initially it’s too soon, and then it’s too late.
Certainly the way defense contracts are planned then awarded, they severely overfunded in the early years and underfunded in the later stages. That overfunding to the contractor based on compressed timelines (due to optimism) creates this lock in effect, especially when budgets are projected over decades.
The TPP was actually devised to get away from the “fuzzy notion that the Government and industry should be ‘partners’” because it leads to “several adverse results.” But in the end, it actually made that Too Big To Fail problem even worse.
Here is Bill discussing the unique relationship between the defense industry and government:
When you’ve got these huge industrial conglomerates that are so dependent on government contracts, it becomes a bit of a two way street. The government also depends on them, and they sometimes view their interests being in the same direction, as opposed to what we would like to see, which is the government regulating and monitoring these firms in order to get the best deal for the taxpayers and the best weapons for the armed forces.
The military-industrial complex, of course, has a third player intimately tied in: Congress. Often times, the firms use the jobs argument with Congress to save programs:
The jobs question is paramount and its sort of the argument of last resort for systems that might not otherwise make it into quantity production.
Defense firms had a different marketing strategy with the US Congress compared to international buyers:
So, it was kind of accepted practice, bribery in international procurement, and certainly other countries were doing it as well…
A lot of it was a double standard. Outright bribery overseas was accepted, whereas here it was more like pork barrel politics, and the revolving door, and indirect influence where occasionally there would be a direct personal gain but often it was done in a more subtle way.
The practice of international bribery was certainly normal. Tom Jones from Northrop was notorious in the US, and during the 1974 international fighter competition, Dassault went heavy on the bribes to sell its new F-1 model (General Dynamics’ F-16, nevertheless, won).
Here is Bill on the “Last Supper” after the Cold War where industry was encouraged to consolidate:
Their argument was that they would save money down the road because you wouldn’t have companies running half-full factories struggling economically. You’d have more efficient, larger firms. Those efficiencies never really panned out, in part because you created huge behemoths that had even more bargaining power.
And here’s part of a Q&A:
Eric: The question is, are government contractors specialists in defense technologies, or do they specialize in government compliance and capture?
Bill: … The proposals are quite complex, so you need a bureaucracy and a team just on proposal development and compliance that some smaller companies would have a much harder time pulling together, or even a commercial company wanting to move into the Pentagon sector. So there’s a built in bureaucracy on the corporate side and the government side as well. And then of course, the government changes what it wants over time…
I’d like to thank Bill for joining me on Acquisition Talk. Be sure to check out his work, such as from his Twitter feed, articles at The Nation, Defense One, The Mises Institute, and his other books on Amazon. Here is his official page at the Center for International Policy. And here he is recently on Democracy Now talking about Boeing, the 737 Max 8 jets, the KC-46A, and more.
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