There are two ways for the Pentagon to spare parts -- everything from lock nuts to airplane ailerons -- for its weapons systems. It can assemble all the resources necessary to buy them competitively and let the market find the lowest price. Or, military buyers can order replacement parts from the original prime contractors and hope for the best. Usually the Pentagon takes the second approach, with results that are a national embarrassment.
Recently, you may recall, the press ran stories about the military paying $1,086.17 each for small plastic caps that attach to the end of a stool leg, and another $430 each for simple claw hammers. Some members of Congress squawked briefly. Defense Secretary Weinberger promised to do better in the future, and the crisis passed. On the scale that Washington uses to measure scandals, this one barely bounced the needle.
If public officials and taxpayers aren't outraged, a lot of businesspeople should lie. The Pentagon's sloppy buying habits prevent thousands of companies from competing in a market that is effectively closed to them.
Because inefficient spare-parts procurement is hidden behind complex regulations and takes place within the lowest bowels of the bureaucracy, few people take the trouble to understand why the current system works to the disadvantage of the taxpayers, the business community, and -- ultimately -- our national defense posture. Procurement bureaucrats and their client corporations would like to keep it that way. But the principles of a rational procurement system, if not their implementation, are not at all complex. Changing the system would be difficult, of course, but it is a job the Administration, especially one as dedicated to national defense as this one claims to be, could do.
Frequently, the government does not buy its spare parts competitively, because it apparently lacks the technical data required to specify the parts it needs. Either the data wasn't ordered from the original contractor, or it wasn't delivered, or it was lost, or it bears a "restricted" stamp. All of this boils down to simple bad management. In a government in which every typewriter and desk is accounted for by serial number, millions of dollars in data rights are uncontrolled.
When the restricted distribution conditions that a prime contractor has placed on technical data are challenged, those restrictions often are found to be groundless. This happened in the plastic stool cap case. Boeing Co, the prime contractor, put its proprietary stamp on the engineering drawing depicting the cap. That stamp meant that the government could not use that drawing to ask for competitive bids on the part and Boeing was free to charge whatever price it chose. Boeing didn't even try to defend its price once the story was out, but until the press made an issue of, it the government had never thought to challenge the company's absurd proprietary claim to the stool cap design.
Even worse, the Department of Defense now has authority to refuse, on national-security grounds, to give technical data to companies interested in competing. How the department will use its new power is not yet clear, but in the past DoD has used any excuse, and sometimes none at all, to keep data out of the hands of potential competitors. Before this bill was passed, the Navy, for example, had created a Catch 22 for potential new spare-parts suppliers by essentially saying to them: We will give you the technical data you need to bid on and produce spare parts only after you have bid to produce the part.
Sometimes problems with insufficient data rights arise because of shortsighted attempts to save money on weapons systems that have already overrun their budgets. To shave a few dollars from the front-end costs, Pentagon managers decline to buy data rights, thus assuring that a potentially expensive sole-source spare-parts procurement situation will exist for the life of the system.
Moreover, the government should know what it is buying, which means that its engineers should have enough technical background to understand the products on which they are supposed to be experts. Too many government engineers don't. Frequently, those who do are far removed from the purchasing activity. For example, authority to purchase such high-usage spare parts as compressor bearings for the Navy and Air Force has recently been shifted from those services to the Defense Logistics Agency. DLA employees are experienced at buying nails, wood screws, electrical tape, and fatigue caps, but they know little about close-tolerance bearings. So when a potential competitor submits a bid to the DLA, the agency must send the proposal back to Navy or Air Force engineers for evaluation, a process that takes months. In the meantime, the contract has already been signed with the normal supplier, and competition is once again foiled.
Government employees, like any other workers, are supposed to work efficiently and effectively in exchange for the salary they are paid. Private-sector employers know, however, that extra incentives, based on performance, can do wonderful things for an employee's enthusiasm. Current rules, on the other hand, provide little incentive for procurement officials to do much more than push paperwork from the in-box to the out-box within the prescribed time. A system that rewarded these individuals -- preferably with cash -- for increasing competition and decreasing prices in the spare-parts market would more than pay for itself.
Likewise, incentives offered by the government to the private sector could boost competition and cut costs. A client of mine recently approached a company that makes a valve used in Navy airplanes. This company sells the valves to the prime contractor, the airplane-engine manufacturer, which resells them with a markup to the Navy. My client offered the same valve to the Navy at a price only two-thirds of what it currently pays the prime contractor, but the Navy has refused the deal because my client is not a "qualified" supplier. Even if we do qualify you, the Navy said, we'll Want to know who your source is, and then we'll go straight to that source.
That hardly seems fair, since the Navy has been buying the same part from the prime contractor for 13 years and has never bothered to ask about its source, let alone approach it directly. The effect is to permit large markups on subcontracted parts, while discouraging entrepreneurs from generating new competition.
Qualification is frequently a Kafkaesque process that potential defense contractors often must undergo before their bids can be accepted. It should be a straightforward inspection process designed to ensure that fly-by-nighters and rank amateurs aren't awarded important defense contracts that they can't fulfill. Too often, however, it is another solid roadblock to competition. Since July of 1982, for example, a small company has been trying to qualify as the supplier of a not-terribly-sophisticated spare part in the engine of a Korean War -- vintage airplane. The company has provided the Air Force with blueprints, made sample parts, tested those sample parts, had an independent laboratory test the sample parts, made more sample parts, and submitted those to the government for more testing. Its parts have passed all the tests, but in more than 18 months it has not been able to get a definitive answer -- yes or no -- from the Air Force. Inexplicable delays like this crop up frequently, and too many applications from potential suppliers languish in interminable reviews. Competition is once again frustrated.
The large prime contractors that currently have the government's spare-parts business want to keep it -- even if it means that they must make refunds for absurdly overpriced stool caps or claw hammers, and even if it means more regulations. Regulations, after all, are effective at keeping newcomers out of the market. But Pentagon reliance on this spare-parts monopoly -- even a regulated monopoly -- means accepting continued inefficiency in the purchase of defense spare parts -- with all of the consequences that inefficiency implies. The editor of Aviation Week & Space Technology magazine has claimed that government paperwork is the villain, but I can't believe that there was a thousand dollars of paperwork in a 50 cents plastic stool cap.
Competition, not more regulation, would put the lie to that kind of absurd excuse.