Congress appears ready to permit a significant change in the Pentagon's shopping habits. The move could save millions through efficient purchasing, but critics worry it will make defense industries less competitive -- raising the cost of weapon in the long run.
Both House and Senate versions of the 1982 defense appropriations bill allow greater use of multiyear contracting, whereby the Defense Department promises a supplier it will keep buying certain weapons over a period of years.
By encouraging efficient production schedules and the stockpiling of raw materials, proponents say, the technique will help the Pentagon stretch its budget further. Military sources estimate that multiyear contracting could save
Multiyear was hailed as "an idea whose time has come" in a recent report from the General Accounting Office.
But critics are jittery about the technique's possible effects on the federal budget and the defense industry.
"Its probably worth a try," says a congressional aide who works on the subject, "but I'm a little leery about giving the DEfense Department such broad authority."
It isn't a shiny new idea. Multiyear contracting was first authorized in 1963, and the Pentagon used it as a regular purchasing technique throughout the 1960s -- until Litton Industries ran up truly spectacular cost overruns on a helicopter carrier contract.
Congress, horrified, banned contracts with cancellation clauses of more then contracting, which locks the Pentagon into future purchases through multimillion-dollar cancellation provisions. In 1975, the ceiling was raised to
But multiyear contracting is chic once again. The house Armed Services Committee held a now-legendary series of hearings in December which emphasized the sorry state of America's industrial base for defense. Witness after witness promoted multiyear contracting.
"It was pounded home by everyone," says an aide who attended the hearings.
As a result, this year's House defense appropriations bill explicitly allows up to five- year contracts for weapons systems meeting criteria for stability and use. It also endorses multiyear contracting for parts and materials.
More to the point, the bill would raise the cancellation ceiling to $100 million. Anything larger would have to be specifically approved by Congress.
The Senate defense spending bill also praises multiyear procurement, but would raise the cancellation ceiling to only $50 million. A conference committee is expected to iron out differences and produce a final bill after the August recess.
So some form of endorsement for this shopping technique appears certain to become law. Critics, however, say it could force the US government to waste money on unneeded merchandise.
"Multiyear contracting fences in money, commits future Congresses to particular major weapon systems acquisitions, and reduces congressional oversight," a report from the House Committee on Government Operations claims. "If used to excess, it would singinficantly reduce the flexibility of DOD [ Department of Defense] to respond to unforeseen change in mission needs."
Since the cancellation ceiling would lay a heavy penalty on the government for changing its mind, some claim the move would encourage the Pentagon to throw good tax dollars after bad.
"They may go ahead with some marginal or bad projects just to keep" their cancellation money, says a congressional staff member who opposes the contracts.
Proponents repeat that items eligible for multiyear buying must be of known reliable design and in constant use -- in effect, the bread, butter, and milk of Pentagon purchases.
Ammunition for instance. the Air Force estimates that multiyear contracting saved about 9 percent on a relatively small purchase of 30-mm shells. But since two companies were each awarded part of the contract, competition save the taxpayer even more, according to the project on Military Procurement.
The distinction emphasizes critics most serious charge -- that multiyear procurement would shut out many contractors, forcing them from the defense industry and ultimately raising prices through lack of competition. The Pentagon would then find itself unable to comparison-shop.
"If one manufacturer has production tied up for five years, who is going to stay in the business?" asks congressional opponent.
The top 10 defense contractors in fiscal 1980 COMPANY AWARDS MAJOR MILITARY GOODS 1. General $3.5 billion Jet fighters, missiles, Dynamics nuclear submarines 2. McDonnell $3.2 billion Jet fithters, cargo Douglas aircraft, missiles 3. United $3.1 billion Jet aircraft engines, Technologies helicopters 4. Boeing $2.4 billion Research for missile and space systems, radar, navigational aids 5. General $2.2 billion Nuclear submarines, jet Electric and helicopter engines, missile components 6. Lockheed $2.0 billion Missiles, aircraft, space systems 7. Hughes Aircraf $1.8 billion missiles systems, radar, navigational aids 8. Raytheon $1.7 billion missiles and components 9. Tenneco $1.5 billion Warships, trucks and tractors 10. Grumman $1.3 billion Jet aircraft and fighter gear Source: Department of Defense Chart by Leon Poindexter, staff artist