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Invisible Barriers

By Anthony Velocci, Aviation Week and Space Technology

Congress, the Pentagon and the Government Accountability Office (GAO) have been clamoring for years that increased competition is the most effective way to reduce wasteful defense spending. Yet the practice of awarding contracts on a sole source basis is pervasive throughout the Defense Department.  In fact, about half of the $3 trillion the department expects to spend during the next decade on just maintenance and operations willinvolve sole-source contracts, according to the Pentagon’s own Competition Reports.

The Defense Department’s justification is that only original equipment manufacturers (OEM) hold the technical data to perform the maintenance.  But here’s the rub: When potential competitors are shut out, the work almost always goes to the OEM, effectively giving it a lifetime monopoly. 

A good example is replacement parts for the propeller for legacy Lockheed C-130 transports. They have been sole-sourced for 60 years to Hamilton Sundstrand, a part of United Technologies Corp.’s Aerospace Systems (UTAS), at a cost of hundreds of millions of dollars. Now the same OEM is replacing the propeller with one that likely will extend the monopoly another 20 years. 

Worse, UTAS won’t release the maintenance manuals for the replacement prop, even though the propeller could be maintained by any one of numerous maintenance, repair and overhaul (MRO) providers, quite possibly at less cost. The net result is that UTAS effectively will be assured of a protected revenue stream over the propeller’s entire life cycle. The irony is that while Defense Secretary Ashton Carter and weapons acquisition chief Frank Kendall bemoan the upfront price of weapons systems, the reality is that the life-cycle cost of military hardware is 2-3 times as much.

Even when some independent companies have expressed a willingness to foot the bill to develop maintenance manuals and replacement parts—potentially saving the Pentagon huge sums of money—the government has still been inclined to turn a blind eye.  In some cases, it has claimed there are insufficient resources to approve newly developed manuals and replacement parts; in other cases, it has indicated no desire to follow up. 

First Aviation Services Inc. knows the drill all too well. For the last three years, the small supplier has been trying to unbundle the multibillion-dollar, sole-source contract that the Defense Department has been awarding to Rolls-Royce annually since 2000. 

If technical data is the issue, the solution is obvious: Enforce existing laws that mandate the government has unlimited rights to repair and maintenance data, including the right to provide it to third parties for all routine maintenance. But if it is a case of institutional bias in favor of OEMs, that may present a more intractable problem—not just for First Aviation but for all lower-tier suppliers that would like to compete for MRO contracts being awarded on a sole-source basis. In either case, current practices make a mockery of the Pentagon’s mantra of “do more with less.”

In an unexpected twist, multiple protests by First Aviation not only revealed that Rolls outsources essentially all the work to subcontractors, but the Defense Department has taken delivery of hundreds of C-130Js without obtaining FAA airworthiness certificates, despite Pentagon budget requests to Congress describing the aircraft as “FAA-certified.” According to an FAA legal opinion, if the Pentagon had not failed to obtain these certificates, it would have immediately clarified any legal question about the Pentagon’s rights to technical data and opened up to competitors all maintenance contracts for the “J” model. 

There are signs that First Aviation is making some headway. For example, Congresswoman Virginia Foxx (R-N.C.), a defense hawk, is urging the House Armed Services Committee and her colleagues to pressure the Defense Department to enforce laws restricting sole-source contracts. Smart, since the implications of First Aviation’s protests are gargantuan when applied to hundreds of billions of dollars in defense spending over the next 10 years and the potential savings that almost certainly would flow from opening up MRO contracts to full and open competition. 

First Aviation is just a microcosm. No doubt, countless other suppliers run into the same invisible barrier year after year. Setting aside the issue of fairness or even the legalities in government contracting, the issue begs the question of whether Defense Department leadership is serious about challenging the status quo and traditional ways of doing business to improve the affordability of weapons systems.

If they are—though there’s good reason to be skeptical—OEMs in the short term will lose lucrative sustainment annuities. On the plus side, the savings and benefits generated by full and open competition might actually be the key to accommodating much needed weapons systems modernization.

Anthony L. Velocci, Jr., was editor-in-chief of Aviation Week & Space Technology from 2003-12.

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