The Pentagon can do better to protect taxpayers from waste

The Pentagon can do better to protect taxpayers from waste
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Over the last few weeks, the White House has unveiled the specifics of its $750 billion budget request for national defense spending. This proposed budget marks a defense spending increase of 5 percent, which is a significant bump upward from the already record high $716 billion Pentagon budget for fiscal 2019. This request for increased funding also comes on the heels of the Pentagon failing its first ever financial audit.

Now the Pentagon is brashly requesting more money without telling the public where current funds are being spent. Congress has a fiduciary responsibility to ensure taxpayer dollars are being spent efficiently. Before asking taxpayers to further shoulder the burden and increase spending on an already historically large Pentagon budget, Congress should first look to reduce waste and prioritize accountability within existing defense spending. One way Congress can ensure the Pentagon is a responsible steward of taxpayer money is to reform the procurement process to drive down contractor costs and safeguard against such runaway spending.

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An act towards achieving this goal would be giving preference to “fixed price” contracts rather than “cost plus” contracts that have a history of contributing to cost overruns in the context of major defense acquisition programs. In a “fixed price” contract, the contractor is paid a set price by the government for the delivery of a weapons system, regardless of how much it costs the contractor to produce. The defense contractor is incentivized to keep costs low and production on schedule, as the contractor will not receive compensation for added costs or delays.

In the “cost plus” model, the contractor is paid a set price plus an agreed upon percentage of the costs of producing the weapons system. While the “cost plus” model provides budget flexibility when development and technological requirements are uncertain, overusing “cost plus” contracts invites wasteful spending and, in some cases, fraudulent cross charging through the improper shifting of costs and expenses from one defense contract to another to boost profits. The use of “cost plus” contracts has contributed quite significantly to cost overruns and wasteful spending.

An example of the unanticipated expenses of “cost plus” contracts is playing out in the long troubled F35 Joint Strike Fighter program at the Air Force. Now the poster child for defense acquisition mismanagement, the F35 program is almost a decade behind schedule and a staggering $200 billion over budget. Despite original projections that the F35A model would cost more than $101 million for each aircraft in fiscal 2020, budget documents now project an average unit cost of more than $130 million.

Furthermore, the readiness issues of the F35 program are well known and at the Pentagon, there are significant questions over its accountability and transparency. In a recent report, the inspector general of the Defense Department found that the “lack of asset visibility restricts” the ability of the Pentagon to conduct the necessary “checks and balances that ensure the prime contractor is managing and spending F35 program funds” in the best interest of the government. Ultimately, that means taxpayers.

The Government Accountability Office warned Congress to press pause on the F35 program last year and recommended “providing in future appropriations that no funds shall be available” for it until the Pentagon can provide a better business case for it. The F35 program is a prime example of the risks tied to “cost plus” contracts and the additional burden they can render on taxpayers when spending runs unchecked.

Rather than throwing money at a clearly troubled program, Congress must follow the recommendations above and hold the F35 program more accountable while seeking alternative options. While it is by no means the only example of Pentagon acquisition mismanagement, it should serve as an example for the necessity of reform across the procurement process. Fiscal responsibility and national security are not conflicting priorities, but achieving both goals requires us to ensure our defense spending is done wisely. Congress has so far failed at this task. Our lawmakers can start by bringing necessary fiscal accountability to the procurement process.

Mike Palicz is the federal affairs manager at Americans for Tax Reform.