If you're the parent of small children, and despite your best intentions, you sometimes find yourself screaming "Shut up! Can't you please just stop whining, and play nicely together?!", then you'll identify with the protagonist of today's story.
Over in the Pentagon, you see, acquisition chief Ashton Carter is having a bit of a nervous breakdown. Seems the multiple members of the military-industrial complex just cannot play well with others. Every time one of 'em wins a contract from the government, the losers cry foul -- and call their attorneys to protest the award. Whereas the Pentagon thinks such protests should be "rare" and never "used frivolously," in practice, they've become anything but ...
Leggo my Eggo!
And let me tell you, folks, if you think it's tough refereeing a four-year-old fight over who gets the last waffle, try dealing with squabbling children in the guise of defense contractors armed to the teeth (with attorneys). Take, for example, Boeing's (NYSE: BA) protest of last year's KC-X Tanker Contract award to Northrop Grumman (NYSE: NOC). After losing the $35 billion contract to its rival, Boeing appealed and won a repeat of the contest. In fact, Boeing may win the contest itself by default, as a disgruntled Northrop threatens to boycott the bidding.
Nor is this the only object lesson in the benefits of squeaky-wheel-gets-the-money intransigence. Back in 2006, L-3 Communications (NYSE: LLL) shareholders were stunned to learn that a Pentagon translation/interpretation contract they had owned for years was being stolen away by tiny rival DynCorp. But they needn't have worried. L-3 proceeded to file multiple protests of the Pentagon's decision, dragging out the process (and securing its revenue stream) for 18 long months. In the end, exhausted, DynCorp finally put an end to the fiasco by subcontracting its contract to ... L-3!
And the list goes on. Last year's JLTV award to BAE, General Dynamics (NYSE: GD), Lockheed Martin (NYSE: LMT), and others quickly gave rise to protests from losing bidders Textron (NYSE: TXT) and Oshkosh (NYSE: OSK). And proving that turnabout is fair play, Oshkosh has itself become the victim of an appeal over its win of a large truck and trailer contract. The scorned party in that deal is none other than BAE -- against whom Oshkosh protested over JLTV.
If all of the above sounds like a crazy way to run a weapons acquisition system, well, it is. But here's the problem: It works. Squeaky wheels do get greased. Boeing whined, and won. L-3 stalled, and got its payday. My problem with the system as it stands, however, is that while this might be good for business, it's bad for America.
MAD men
Once upon a time, we had a concept here in America, called "Mutually Assured Destruction." (Maybe you've heard of it?) We never got to test it out in practice, thank goodness, but right now, a variant on the theme is playing itself out on the defense contracting stage.
In Iraq, L-3's intransigence condemned countless translators to months of worry over their job security as they wondered who would be signing their next paycheck. Oshkosh's protest of BAE's victory on JLTV, and BAE's counter-protest of Oshkosh's contract, threaten to delay shipment of vital military vehicles to Iraq and Afghanistan today. Most egregious of all, defense industry malfeasance, combined with abuse of the appeals process, has delayed the delivery of crucial air refueling tankers to our Air Force by upwards of six years.
Time to change the rules
Clearly, it's in everyone's interest to stop the MADness. After all, what good is it to win a contract if you know the loser will simply protest, and prevent you from working on it? Problem is, no one's got any incentive to play nice under the rules as they stand. Do that, and you get played for a patsy.
That's why I am thrilled (yes, thrilled) to see that Boeing has stepped up and tried to change the game.
One month ago, as you may recall, Boeing lost the contract to service the nation's KC-10 tanker fleet, as Northrop swooped in and grabbed it. Considering Boeing's vast experience in servicing the tankers -- and the fact that it owns the company that built them itself -- there's every reason to believe Boeing had a sound basis for protesting Northrop's win. But at the time, I argued Boeing should not protest the award, as doing so would just perpetuate the cycle of bid-lose-protest that has caused the Pentagon's wheels to grind to a halt.
Foolish takeaway
And guess what? Boeing listened. Last week, Boeing confirmed that after taking it on the chin from Northrop, it's turning the other cheek.
Having thus set the example of "playing nice," Boeing now deserves a reward. The Air Force should publicly declare that Boeing's decision to put "Country First" will weigh in its favor when deciding to whom to award the KC-X Contract. Doing so will put other contractors on notice of which behavior merits praise, and which deserves a spanking.
It works in my house. It can work in the Pentagon, too.
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