One after another last fall, the spare-parts horror stories appeared -- revelations that military procurement officers had paid $7,600 for a coffee maker, $9,600 for a simple hexagonal wrench, $1,100 for a plastic stool cap that sold in a hardware store for about 25?. The disclosures brought indignant responses from Capitol Hill and spawned more than 100 bills aimed at injecting competition into the Defense Department's procurement process.
Several bills did pass, including the Small Business and Federal Procurement Competition Act of 1984, which was signed by President Reagan in October. Among other things, the bill assigned field-level personnel the task of helping to bring more small businesses into the bidding for spare-parts contracts. But the law won't do much to solve the problem. As the spare-parts issue became an election year sideshow, another drama was unfolding in Washington that illustrated how intransigence within the Pentagon will kill any hope for meaningful reforms.
The issue is data disclosure, and the story begins with Newport Aeronautical Sales, a tiny ($275,000 annual sales) firm in Newport Beach, Calif. Since its founding in 1974 by George M. Posey III, a Vietnam veteran and former aircraft hardware salesman, NAS has sold specifications for military spare parts to hundreds of small companies that need the specs and drawings to compete for defense contracts against large contractors, which often already have that information from their previous work for the Pentagon. Under the best of circumstances, it is no easy task for Posey to find the right specs. He peels back layer upon layer of military bureaucracy, often moving from base to base around the country. "The reason I'm in business now is that the system is so screwed up," Posey admits. "The small business guy doesn't want to deal with the bureaucrats."
In 1983, the bureaucrats decided that they didn't want to deal with Posey, either. When they realized he was reselling the drawings he obtained, they began to shut him off, and not very subtly: Sometimes they claimed that NAS was seeking corporate proprietary data that it wasn't permitted to release; at other times, the officers cited national security grounds or said that their backlog of requests was so great that an answer would take months. By early 1984, NAS was facing extinction. So Posey did the American thing -- he sued, citing disclosure difficulties at the Naval Air Technical Services Facility in Philadelphia. Last spring, he reached a settlement in federal court that solved only a few of his problems.
Settling the suit, though, brought problems that were even worse. Word of Posey's quixotic battle rose to the upper reaches of the Pentagon, which was under siege at the time for trading bars of gold for wrenches and coffee makers. Rather than succumbing to what they considered to be politically motivated attacks, the Pentagon brass decided to fight back. They launched a sizable public relations campaign to defend their existing procurement policy -- and moved simultaneously to limit access to spare-parts technical data.
The latter task had fallen, surprisingly, to L. Britt Snider, a counterintelligence director for the Deputy Undersecretary of Defense for Policy. Posey, who thought he was helping to increase competition and thereby hold down the cost of military spare parts, suddenly found the service he was providing to be an object of interest among Pentagon counter-intelligence officers, not the most broad-minded group in Washington.
Snider started out convinced that "data brokers," such as NAS, represented a serious threat to national security. So his group drafted regulations allowing very low-level bureaucrats to decide whether disclosure of requested data would jeopardize security. Even if the officers approved disclosure, the draft rules raised the cost of obtaining drawings to nearly prohibitive levels.
Months of haggling and tough lobbying climaxed last fall at a private meeting on Capitol Hill among Snider and other Defense officials, congressional staff, and the small business lobbyists. The meeting, described as contentious by some who attended, resulted in a compromise: The Defense Department agreed to recognize the legitimacy of data brokers, but changed the regulations that require them to pay more for the information. Says one lobbyist who helped hammer out the agreement, "I think [the procurement officers] are going to be just as bad as they've ever been. What this [compromise] deprived them of was a way to justify their attitude."
A deep division within the small business lobby made it easier for the new restrictive rules to go through. Many basic-industry contractors supported the campaign for access to spare-parts specifications. But many high-technology contractors opposed liberalized data rights because they feared that proprietary information would be disclosed in the process. In their kind of work, they argued, there is often a commingling of privately developed, proprietary technologies and DoD-funded, public domain technologies. "It's not right that a company develops something on its own, then has it taken away and given to its competitors," says Jack Rennie, president and chief executive officer of Pacer Systems Inc. and a director of the Smaller Business Association of New England.
Such bickering among small business advocates plays into the hands of the powerful aerospace lobbies, which go all out to protect proprietary information because it helps to keep their advantage over outsiders. "[Access to data] is the one thing that really hits home at the major contractors," concedes a Senate staffer. "There's a lot of pressure not to touch that [issue], even among those senators who support spare-parts legislation." Such large aerospace companies as Pratt & Whitney, Lockheed, and General Electric, which now control about 80% of spare-parts contracting, regard the sporadic congressional effort to inject competition into the procurement process as akin to the plague of the seven-year locust. Sneers one, "You can imagine how the quality of our planes is going to be affected . . . when they've got these parts being made by some Joe in Oshkosh."
Because of the vested interests and the deep-seated bias in the Pentagon against "some Joe in Oshkosh," military officials acknowledge privately that spare-parts procurement won't change much. As Bruce Hahn, a lobbyist with the 3,500-member National Tooling and Machining Association, puts it: "The Department of Defense is like a country unto itself. And it's like you are coming into their country asking them to change their laws. I don't think it's the high-level appointees who are the problem. It's really the bureaucrats in the bowels of the system. [They] control everything."
It is unlikely that those bureaucrats will make big changes in procurement methods anytime soon. Despite legislation and sharp criticism from Congress and the press, the Defense Department remains the Reagan Administration's political sacred cow. It will be business-as-usual for the Pentagon during the President's second term, and that means hexagonal nuts will continue to cost the taxpayer $2,000.