Contractor Push For Inflation Increases Could Enable Profiteering

As Senator Elizabeth Warren has noted in two recent letters to Pentagon and arms industry officials, weapons contractors are working overtime to translate concerns about inflation in the defense sector into an opportunity to reap windfall profits that will do little to increase defense capabilities and much to enrich them and their shareholders.

There are two issues of immediate concern: the Pentagon’s consideration of industry proposals to renegotiate existing contracts upward in the name of fighting inflation, and the industry’s proposal to add $42 billion to the Fiscal Year 2023 budget for the same reason. Neither of these proposals have been backed up with hard data. Instead, the industry and the Pentagon are seeking across the board increases that appear to be far beyond what would be needed to deal with specific instances of inflation. This money grab must be stopped.

As Warren has pointed out in a letter to Under Secretary of Defense for Acquisition and Sustainment Bill Laplante, she is concerned about “Defense (DoD) plans to implement an industry-written proposal to increase defense contract prices without sufficient safeguards in place to prevent industry profiteering and ensure that the increased costs are appropriate and necessary.”

Warren’s concerns are well-founded. As her office has determined, even as the Pentagon increased cash flow to major contractors tied to supply chain concerns sparked by the impacts of the Covid pandemic, those same companies turned around and made billions of dollars worth of buybacks of their own stock, inflating share values while doing nothing to address production delays or cost increases.

Warren also urged the Pentagon to beware of contractor claims of financial difficulties, “given their second quarter profits, which show operating incomes that increased over the last quarter and average 11.7%.”

There are also serious questions about whether the industry’s push for more money has violated government ethics rules. On September 13th of this year the National Defense Industrial Association – the weapons industry’s largest advocacy group – released a report calling for the $42 billion in increased Pentagon spending for Fiscal Year 2023 noted above. Two of the authors of the report, including NDIADIA
president and CEO David Norquist, are former Pentagon officials. As Sen. Warren noted in a letter to Norquist in his capacity as head of the NDIA:

“You served as Deputy Secretary of Defense from July 31, 2019 until February 9, 2021.As a presidentially-appointed, Senate-confirmed official you are subject to a number of representational, cooling-off, and lobbying bans, including a two-year ban on influencing employees of the executive branch ‘on behalf of another on matters that were pending under your official responsibility during your last year of Federal service,’ and a two-year ban on providing behind-the-scenes lobbying assistance.”

Under the ban, Norquist should not engage in efforts to influence the Pentagon or any other executive branch agency until at least February of 2023. His role in producing the report on increasing the Pentagon budget by tens of billions of dollars – a report that has been used to persuade the Pentagon, the media, and members of Congress of the “need” for these additional funds – appears to violate the above-mentioned ethical strictures.

These efforts to use inflation as an excuse to increase Pentagon spending to levels far in excess of what is needed to address any actual price increases must be resisted by Congress and the Biden administration. Congress is already on track to add tens of billions to the Pentagon budget beyond what the department even asked for, much of it for pork barrel projects located in the home states or districts of key members.

Meanwhile, the Pentagon continues to promote a “cover-the-globe” military strategy that calls for the capacity to intervene anywhere in the world on short notice; a massive plan to build a new generation of nuclear weapons at a time when organizations like Global Zero have outlined practical plans to reduce the size of the U.S. nuclear arsenal while maintaining deterrence and reducing the risk of a nuclear conflict; investments in dysfunctional weapons systems like the F-35 combat aircraft and the Littoral Combat Ship; and the employment of hundreds of thousands of private contract employees, many of whom do jobs that could be done more cheaply and effectively by civilian government employees.

There is ample room to reduce the Pentagon’s bloated budget, which is now far higher than the peaks of the Korean or Vietnam Wars or the height of the Cold War. Preventing profiteering and crafting a more restrained, realistic strategy are two good places to start.