In New Contracting Proposal, Pentagon is "The Good Guy"

After the C-130J was converted from a "commercial item" to another contracting type, taxpayers saved $168 million.

By DANA LIEBELSON

A new proposal by the Pentagon to change the wording of a contracting statute could save taxpayers billions of dollars. Last week, the House decided not to vote on this proposal—but it's not too late to stop the Senate from making the same mistake. Today in TIME’s Battleland blog, we discuss just why it’s so important to stop contractors from labeling certain items "commercial goods" when they’re never actually bought by the public.

From the article:

Raise your hand if you know someone who would buy such a massive aircraft, designed to ferry troops into war zones, for personal use. Anyone? Until 2006, the C-130J was labeled a commercial item—a decision the Department of Defense Office of Inspector General criticized in a 2004 report.

Unsurprisingly, only the Air Force bought them. But by using this loophole, Lockheed Martin, the aircraft’s manufacturer, was able to skirt contract-pricing transparency laws designed to protect the taxpayer. And of course, the aircraft wasn’t subjected to the price competition that exists in the real world, because no other company was trying to sell a massive military jet to either the Air Force or consumers.

This is an issue that POGO has been working on since 1999—it’s high-time that we stop defense contractors from getting away with this questionable practice.

Dana Liebelson is POGO’s Beth Daley Impact Fellow.

Follow @dliebelson

Photo via Flickr user Ranger BP

Comments

[Dfens]

I'd love to spend some time talking with you, Bryan, but I think the closest I've been to the DC area in the last 3 years was Delaware. The fact of the matter is, POGO needs to establish some better criteria for what your organization sees as "good" and "bad" in this big dollars game of defense procurement. Some things you get right, like being critical of the V-22, the way the Air Force is dealing with the F-22 oxygen system, and the funding of slavery via these mercenary-for-hire groups like Blackwater. Too often, though, your organization becomes the hapless dupes for the defense contractors. They use you to further their agenda. Any weapons program you've called to have cancelled just as it goes into production is the single biggest category where your organization is always happy to do the defense contractors' bidding, but right behind that is the C-130J. I mean, come on, do you not by now recognize the "yuck" of a defense contractor shill posting in what that "DOC BOOT" wrote? Funny how you never see a post like that when it comes to taking a stand against "sex slaves", isn't it?

What you really need to understand is the root agenda of the players involved. When it comes to the DoD, you have already nailed it. It's the revolving door. In fact, it goes further. If you cross a defense contractor, your career in the DoD is over. They control that many people. I don't understand how it is you can't figure out what motivates the contractor's themselves, though. It should be quite obvious. It's money. Bottom line dollars. Even when it seems they're not doing something just for money, they are. Wasn't the famous Deep Throat quote, "follow the money?" That's all you have to do here. Anything that threatens the their "profit on development" jackpot is something the defense industry is against. Anything that promotes it, they are for. Look at which side you are standing on when it comes to this particular topic, and you'll see why I so strongly disagree with you here. It is honestly that simple.

[Bryan Rahija]

Dfens --

Want to have coffee some time to discuss?

Lattes on me.

[email protected]

[Dfens]

The US Air Force was not even the first customer of the J model of the C-130. Great Britian's RAF was the launch customer. The price of the aircraft was set for them and other potential foreign customers before the USAF was even interested in buying one. So what's the big problem? If I develop a new gun in my garage, I sell it for the price the market will bear. You don't come to my house and figure out what it cost me to build it then offer me that amout plus what you deem to be a sufficient profit? If the government wants to buy one of my new guns, the same rules apply. Why wouldn't they? Would Apple let you set their prices for an iPod? Could you get away with that with a cell phone or computer manufacturer? That's not how the real world works. And yet, this "risky" process of capitalism consistently works better than all other economic approaches, providing better bang for the buck than the socialist approaches of communism or fascism. Go figure.

[Bryan Rahija]

Gary --

First off, our interest is in protecting U.S. taxpayers -- not Lockheed's shareholders. Second, our problem is exactly the same thing you point to -- that under the FAR, AF was not allowed visibility into Lockheed's costs. That's why we support DoD's proposal to adjust the FAR. Third, to your point about commercial items and foreign governments, the FAR and DFARs state that foreign government sales are not considered sales to the general public, and therefore would not justify a commercial item designation.

[Doc Boot]

DFENS, if you want to rely on wikipedia as the source of all knowledge (a risky assumption), you should note that the old L-100s built and operated commercially are comparable to military C-130Es. After that generation, the Air Force bought updated C-130Hs, which have their own sub-generations known as H2s and H3s (and even, would you believe, H2.5s). And THEN Lockheed came along and informed USAF that they were no longer building or supporting C-130Hs, but here's the latest greatest C-130J, the military version of the Model 382J (not the other way around), which will make all your dreams come true! Except here's the thing: the 382J was a paper airplane, it had never been built or sold commercially! It was also about 70% new airplane, with all the design tweaks and the fundamental overhaul in avionics in the digital age. And the kicker is, it couldn't do the mission upon delivery, because they had seriously underestimated the scope of integrating all the new systems. After terminating operational testing in 2000, USAF resumed testing in 2005 with Block Upgrade 5.4 to fix some of the problems. Then more fixes in Block Upgrade 6 got tested in 2008. Now they're waiting on Block Upgrade 7 to fix more deficiencies, but that delivery keeps slipping to the right. At least now (having corrected the commercial item mis-designation) USAF has some contractual ability to dock Lockheed's award fees for these delays. But still having to fix problems with a "commercial" off-the-shelf system some 13 years later shows what a mistake the original acquisition strategy was. So if you want to jump all over a policy wonk for mistakenly calling a turboprop a "jet," DFENS, that's the only rickety leg you have to stand on.

[Gary]

In the early 90s, Lockheed proposed to the AF to develop the C-130J variant. The AF said no, so Lockheed used well over a billion dollars of company money to develop the J. As a commercial item under FAR regulations. This would allow sales to foreign countries as well as the US Gov if the AF changed it's mind. Under FAR rules Lockheed was allowed to charge a price that allowed recovery of its investment. And again under FAR the AF was not allowed visibility into Lockheed costs. In the 2000s, Sen McCain essentially railroaded Lockheed into writing off about $1B in costs, (a loss to the stockholders)and converting sales to a military item. They have delivered over 100 of the J variant since the late 90s. The term commercial variant generally means direct sales to foreign governments. POGO needs to get some facts straight before shooting from the hip.

[Dfens]

Seriously, that's what your 5 minutes of actual internet research taught you, that Lockheed has not been able to build a commercial variant of the C-130J in the last 8 years? That's laughable.

The C-130J was certified by the FAA. The FAA certifies commercial aircraft. The C-130J is not a JET. It is a propeller driven aircraft. It is not particularly large. It is about the size and price of a Boeing 737 (which is a jet, by the way). The C-130J has 16 customers other than the US Air Force. 14 of them are other countries. Two are other US agencies. All paid about the same price. There have been hundreds of variants of the C-130 sold to hundreds of other countries since 1956. Some of these variants have been flown by private companies, including the L-100 variant which was sold new to private companies. Others have been sold to private companies as military surplus.

I am advocating the US government buy more goods on commercial contracts. These contracts work well and have been used to buy a wide variety of weapons including the SpaceX Falcon, the Barrett 50 caliber sniper rifle, and many of the UAV's that served so well in Iraq and Afghanistan. You are advocating they buy nearly everything with the same kind of contract they used to buy the V-22, F-22, and F-35.

Your contract of choice guarantees contractors will make at least $1.10 off of every $1.00 they spend, but you can't seem to figure out how that runs up the cost of weapons or causes their time of development to drag out to decades. I am advocating they buy weapons using a contract commonly used in the free market place. This type of contract doesn't guarantee you won't get screwed, but then it also doesn't guarantee you will get screwed as your contract of choice does.

If you want to be an advocate for the US taxpayer, think outside the beltway. The rest of us out here in "fly-over country" already do.

[Project On Government Oversight]

haha...kill em with kindness

[Dana Liebelson]

From a DoD IG report: "Lockheed Martin sold previous C-130 models commercially and currently offers the commercial derivative of the C-130J for commercial sales. The commercial derivative is substantially the same aircraft but also includes features not available in the commercial marketplace...Even if the commercial derivative is substantially the same aircraft as the C-130J, the fact that Lockheed Martin has been unable to design, develop, or deliver the contracted C-130J aircraft for 8 years casts serious doubt on the commercial nature of the purchase."

Link: http://www.dodig.mil/audit/reports/fy04/04-102.pdf

Have a nice day and thanks for reading POGO's blog.

[Scott Amey]

Dfens --
It's pretty clear that the government is misclassifying items as commercial and that contractors are abusing the designation, and as a result, taxpayers are footing the bill. It's also pretty clear that contractors have opposed TINA for years and this is another effort to keep cost or pricing data out of government hands. Supporting DoD's proposal is a no-brainer, at least in sole-source procurements when there is no price competition -- sole source and no data is a bad recipe.

[Dfens]

The L-100 is a commercial variant of the C-130J, which is, as anyone can plainly see by looking at the picture, NOT A JET. It has 4 13 foot diameter propellers. Seriously, how much research does it take to figure out what's plain to most IN THE PICTURE attached to the article? Not to mention the fact that all you would have to do to figure out the L-100 is a commercial variant of the C-130 is to go to Wikipedia. FAIL, Ms. Liebelson. Big FAIL.

[Dana Liebelson]

Matt, your link is for the L100 not the C130J, which was not bought commercially. Our point is that the vast majority of C-130s have been sold to Air Force, and most importantly, purchased on a non-competitive basis.

[Dfens]

It is sad that POGO continues to either attack or ignore vehicles that highlight the best procurement process the government could use to be a better steward with the US taxpayer's funds. The C-130J, as with most C-130 variants, was developed using Lockheed stockholder funds, and not those of the US taxpayer. SpaceX's Falcon 9 spacecraft launched successfully today has been ignored by POGO even though its predecessor, the space shuttle program was a failure of massive proportions, and blazed the way for the procurement system commonly now used across the federal government which has caused so much of your money to be wasted.

NASA is looking to the private sector to take over orbital trips in this post-shuttle period and several U.S. companies are vying for the opportunity. The goal is to get American astronauts launching again from U.S. soil -- creating jobs at home and halting the outsourcing, as Bolden put it.

Until their retirement last summer to museums, NASA's shuttles [at more than $1 billion per launch] provided the bulk of space station equipment and even the occasional crew member. American astronauts are riding Russian rockets to orbit until SpaceX or one of its competitors takes over the job. Russia also is making periodic cargo hauls, along with Europe and Japan.

Musk, a co-creator of PayPal, founded SpaceX a decade ago. He's poured millions of his own money into the company, and NASA has contributed $381 million as seed money. In all, the company has spent more than $1 billion on the effort. -- Mercury News

It is well past time the US government put an end to giving free money to their rich, contractor cronies. Let's drive a stake through the black heart of the standard federal contract that guarantees the contractor $1.10 or more for every $1.00 they spend. That's just stupid. If you don't think so, try to get a contract like that in the free market, or, better still, offer someone, anyone, a contract like that and see how soon you and a large chunk of your money are parted. The main difference being, it's not the government's money they are spending. It is ours!

And by the way, urge your US Congressional representatives to stand against this legislation POGO is championing. It will do nothing but cost you money.

[Matt Cole]

There are some commercial versions of the C-130 which are in use, and have been since about 1964. I'm not sure how accurate this is, but Wikipedia says there are 36 in use around the world. I remember Lockheed advertising in engineering magazines in the 80's about the capability of the C-130 civilian aircraft for ferrying supplies to remote locations.

There are many commercial cargo aircraft with larger capacity than the C-130, so it's not really a "huge" aircraft as they go. But there doesn't seem to be the demand for the versatility of the C-130 in the air cargo business.

http://en.wikipedia.org/wiki/Lockheed_L-100_Hercules