Competitive Bids Save Pentagon Money, But at What Cost?

LAST year they had a trash removal problem at the Air Force's big repair depot near Ogden, Utah. There was no pickup at a number of base buildings. Budget cuts had slashed money for depot janitorial services by 50 percent. So to get their garbage picked up, base officials tried an old capitalist tool - competition. They pitted two small contractors against each other for trash and snow removal business. As a result the price for the services dropped substantially, and the base breathed easier as extensive pickups returned.

This tale of rubbish is an unusual example of the important role competition is playing in military purchasing. The Pentagon buying system is under much critical fire because of allegations of fraud and abuse, but many defense procurement officials say the increasing use of competition is one thing they are doing right. ``The competitive marketplace serves as our best pricing mechanism,'' said Everett Pyatt, the Navy's assistant secretary for shipbuilding, in a just-released competition report.

Of course, competition Pentagon-style is not quite as freewheeling as it is in private industry. Typically only two companies are involved, and often even the loser is guaranteed a share of the business. Still, savings have been substantial:

The Navy was able to buy 11,000 more submarine-detecting sonobuoys last year than it had planned because of a price war between producers.

The price of an Air Force training radar went from $9,600 to $5,200 after a second company bid on its production.

The military services have long held competitions between contractors to determine whose design for a new weapon was best or cheapest. In the past, once this initial contest was over, the winner could almost count on being the only company making the weapon for as long as it remained in production.

But in the early 1980s, under congressional pressure, the armed forces turned to more-competitive buying practices as a way to hold down rising weapon costs. Now in many cases competition continues once a weapon is in production. Both General Dynamics and McDonnell Douglas both build the Tomahawk cruise missile, for instance, with the winning bidder getting the lion's share of the business each year.

Right now the Army is the Defense Department competition leader. Of the $30 billion the service spent through contracts last year, $18.5 billion, or about 62 percent, was awarded competitively. That's up from about 41 percent in 1983.

The Air Force was next, with 61 percent of its contract money spent competitively, up from 34 percent in '83. The Navy weighed in with a comparable figure of 56 percent, up from 33 percent.

Small and medium-size items such as sonobuoys and missiles are the easiest to open to competition. Large systems like tanks and planes are so complicated to build that finding a second company willing to bid against the original producer can be difficult.

This disparity can be seen in the fact that the Naval Air Command, the arm of the service that builds planes, has by far the least amount of competition of all Navy buying commands. Long-running programs like the F-14 remain sole-source. Until the next generation of major systems comes up for purchase, the Navy as well as the other services may find it hard to further improve their competition performance.

``We've reached a plateau,'' says Rear Adm. William Hauenstein, a Navy competition advocate.

Competition may also have done some damage, according to a recent report on defense reform by the Center for Strategic and International Studies. In the race to be the lowest bidder companies may have pursued questionable practices to find out their competitor's bid. In addition, if the armed forces hold auctions in which the lowest bidder is automatically the winner, quality may suffer.

The Air Force boasts that windshields for the B-1B bomber have been substantially reduced in price, saving $2.4 million over five years, because of competition. But a recent General Accounting Office report says B-1B windshields have distortion and delamination problems. The Air Force blames the problem on old technology and estimates it will need $15 million to test and buy better windshields.

A graph on Page 7 of the Feb. 24 paper represented the percentage of military procurement dollars awarded competitively, not the percentage of contracts awarded competitively.