Congress Locks Pentagon into Commercial Item Ripoffs

Quietly and without fanfare, The Department of Defense (DoD) has terminated a proposed rule that would have prevented the waste of billions of taxpayer dollars on so-called “commercial” items. These are items that are supposedly sold in the consumer marketplace. The rule was proposed in August, but was fiercely opposed by defense contractors, their lawyers, and some members of Congress.

To understand the issue, it’s important to note that the government often buys “commercial” goods and services that are not actually sold in the commercial market. Even worse, these purchases are often made without competition and without any government review of the cost information that supports the final price the contractors are proposing. Audits by the DoD Inspector General have uncovered innumerable instances of misspending by DoD such as millions of dollars wasted on spare parts and improper efforts by the Air Force to purchase refueling tankers and C-130J cargo planes (and their parts too) as “commercial” items.

Even the Air Force admitted that, once Senator John McCain (R-AZ) forced it to restructure the C-130J contract so that it was no longer a commercial item, the government saved $168 million.

DoD’s efforts to redefine what is a commercial item isn’t new. In 2012, DoD asked for a commercial item definition change, but Congress didn’t go for it. Giving credit where it’s due, the Pentagon did the right thing and issued the proposed rule earlier this year. The Project On Government Oversight (POGO) submitted a public commentsupporting the proposal.

That rule would have standardized commercial-item buying and enabled the DoD to obtain cost or pricing data that would ensure taxpayers don’t get ripped off. POGO supported the inclusion of the term “market-based pricing” and requiring contracting officers to “obtain adequate commercial marketplace sales data.” That reform would have especially protected the government in cases of non-competitive awards in which the contractor refuses to turn over any cost or pricing data.

Also, the rule would have defined a commercial market as one in which 50 percent or more of the sales by volume are nongovernmental. This would have helped avoid buying items that are designated as commercial, but for which there are no genuine commercial market prices.

Despite these efforts, there is great pressure to protect the DoD industrial base, and contractors seem to have convinced senior officials that the world will end if commercial really means commercial. Congress bought into that hype and placed pro-industry provisions into the FY 2016 Defense Authorization Bill (Sect. 851-857) that will continue to expand the buying of military-only items, limit DoD’s access to contractor pricing information, restrict conversions when an item no longer has a commercial market, and essentially lock the government into previous commercial determinations and prices. Simply stated, Congress just forced DoDinto a worse buying position than the one that it is in.

This is a recipe for disaster. Just ask yourself: Are you willing to buy items at potentially outdated prices (like, say, a 40-inch HD TV for $2,000 or an 8 GB iPhone for $299) because that’s what others paid in the past? That doesn’t sound like market-based pricing and DoD and taxpayers will be at risk for a long time to come if a government official recently paid too much for an item.

Certainly, Congress isn’t helping the situation, and that leaves DoD in a difficult spot. If “commercial” buying goes down this path, taxpayers will just have to accept more bad deals with defense contractors—deals for military-use only items that have excessive costs because there is no competition and no valid cost or pricing information for which to make a valid price determination.