Defense Contracts: Winner Should Take It AllJune 04, 2010
 Defense Secretary Robert Gates has been trying to kill funding for an alternative jet engine for the F-35 while Congress has been trying give a contract to a second engine maker. This tug of war between the Pentagon and Congress puts several established defense industry business principles into direct competition. For one thing, while Republican lawmakers have raised the alarm about skyrocketing budget deficits, and have criticized spending by President Barack Obama and congressional Democrats, they are not willing to cut defense projects that benefit businesses and voters in their districts. In this case a group of both Republican and Democratic lawmakers pushed for $485 million to fund the alternate engine in the proposed $708 billion fiscal 2011 defense budget. The funding is supported by House Minority Leader John Boehner of Ohio; Democratic Rep. Steve Driehaus of Ohio; and Virginia Rep. Eric Cantor, the No. 2 House Republican, according to The Wall Street Journal. As noted in a previous post, the second engine would be built by a partnership between General Electric — with a factory in Cincinnati, where many people in Boehner's district work -- and Rolls-Royce, which has employees near Cantor's Richmond-area district, according to the Journal article. And both companies have a production plant in Indianapolis, which benefits a third Republican leader, Rep. Mike Pence. To make the second engine more palatable, lawmakers have positioned it as a way to nurture more competition and to potentially save money in the long run, according to an article in The Christian Science Monitor. But Gates has held his ground and will recommend that the President veto the defense spending bill if Congress continues to push for the second engine. He noted that funding the alternate engine is mostly a win-win for all the contractors. “As I’ve said before, only in Washington does a proposal where everybody wins get considered a competition, where everybody is guaranteed a piece of the action at the end,” Gates said, according to the Monitor. “Yeah, we’re in favor of competition. But my idea of competition is winner takes all, and we don’t have that kind of a situation here.” Lawrence G. Hrebiniak, a management professor at Wharton, said Gates' stance makes good business sense. "I'm all for competition for the F-35 engine, but the competition should have occurred prior to the awarding of the contract." As is the routine procedure, there was an RFP [request for a proposal] and responses from engine makers, with the Pentagon choosing one of the bidders. "That is where the competition should have occurred — not now, after the award," he said. "I don't see how spending $450 million-plus is going to increase competition on this particular project." Hrebiniak agreed with Gates that the winner should get the only contract; and when the contract comes up again, the engine makers "should fight it out again." |
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