WASHINGTON — Congress’ top populist has fired a shot across the bow of defense industry fat cats.
Vermont Independent Sen. Bernie Sanders has asked Defense Secretary Jim Mattis to address “the excessive compensation of defense contractors, the widespread misconduct and fraud in the defense contracting industry and massive cost overruns in the acquisition budget.”
Sanders — who ran for president in 2016, attacking the vast earnings at the top of corporate America — penned the March 14 letter to Mattis as the Pentagon expects a windfall from Congress’ two-year deal to raise budget caps for defense by $165 billion and for nondefense by $131 billion.
At a Senate Budget Committee hearing a week earlier on the department’s 2019 budget request, Sanders — the panel’s ranking member — railed at Defense Department Comptroller David Norquist over the Pentagon’s failure to undergo an audit, as well as defense contractor compensation, fraud and overruns.
“I would hope that nobody here believes that just because this is the Department of Defense, we will defend an enormous amount of bureaucratic waste,” Sanders said. “One half of the Pentagon’s budget goes directly into the hands of contractors, and of that amount, one-third, or about $100 billion, goes to the top five contractors in the United States.”
Norquist, at the hearing, said he could not comment on how defense contractors pay their employees, but he said taxpayers “should be paying for the service that we receive.”
The Project on Government Oversight’s general counsel, Scott Amey, on Thursday welcomed Sanders’ voice as defense spending rises, making a comparison to the oversight Congress exerted on the 2009 economic stimulus package.
“With more spending, you also need more oversight,” Amey said. “They added some protections to the stimulus to make sure it’s not ripe for waste, fraud and abuse. I don’t know if they’re adding the same protections, now that they’re increasing the defense budget.”
CEO compensation
In the letter, Sanders asked Mattis why he has allowed the CEOs of Lockheed Martin and Raytheon — two of the top five U.S. defense contractors — to be paid more than $20 million in total compensation. He also asked Mattis for a list of recommendations on reducing excessive defense contractor compensation and the DoD’s actions on the issue.
There is a salary cap for CEOs of government contractors of about $500,000. Still, Sanders highlighted a loophole that exempts fixed-price contracts and allows contractors like Lockheed to pay executives what they want as long as they don’t seek reimbursement from the government.
With some contractors reaping 90 percent of their revenue from the government, Sanders was in essence asking how the companies can afford to skirt those caps when they’re not being reimbursed.
While the taxpayer’s dollars should be safeguarded, so should a robust, resilient and innovative defense industry, said Andrew Hunter, a former Pentagon acquisition official now with the Center for Strategic and International Studies. That means attracting top talent.
“To my mind, Sanders is ignoring the concern that we need to give jobs to people in industry, and that involves paying them salaries that are competitive with Google, Apple and others competing for talent,” Hunter said.
Contractor fraud
Sanders asked Mattis to provide a strategy for preventing future defense contractor fraud, noting that over the last two decades, virtually every major American defense contractor has paid millions of dollars in fines and settlements from misconduct and fraud.
To Hunter, Sanders seemed to be conflating fraud with the many routine cost disputes between defense firms and the government, which already has access to detailed contracting data. “That trivializes actual fraud,” Hunter said.
For the top five defense prime contractors, penalties for fraud alone have totaled $612.9 million since 2000, according to a Defense News tally of the Project on Government Oversight’s contractor misconduct data. Northrop Grumman leads with $427 million; followed by Boeing with $97 million; Lockheed with $86.4 million; and Raytheon with $2.4 million. (POGO’s data did not show any fraud penalties for General Dynamics.)
In 2011, Sanders requested the Pentagon report to Congress on defense contractor fraud and misconduct. The DoD detailed how it was paid $573 billion over 10 years by more than 300 contractors involved in civil fraud causes against the federal government.
This year, the DoD will be required to submit reports on fraudulent contractors and the government’s dealing’s with them, per language passed in the 2018 National Defense Authorization Act.
When the Defense Department awarded contracts worth $324 billion in fiscal 2017, it makes sense to guard for fraud, said Amey.
“He wants a specific breakdown on contractors who are defrauding the Department of Defense,” Amey said of Sanders. “That request isn’t new and can be helpful in exposing those defrauding the government and making sure more money gets to DoD programs and the war fighter.”
Cost overruns
Sanders not only called on Mattis to hold defense contractors accountable for the significant cost overruns that American taxpayers have been forced to pay, but to also work to prevent future overruns.
According to a 2016 Deloitte study of the aerospace and defense sector, cost overruns for major defense acquisitions programs in 2015 was $468 billion, up from $295 billion in 2008. The total cost of the DoD’s portfolio grew at 48 percent with an average schedule delay of 29 1/2 months.
Complaints about cost growth have grown less frequent in Congress as lawmakers have stressed technological innovation to catch up with competitors Russia and China.
“We’re actually worried that we’ve gotten too conservative in our approach to acquisition and we are stamping out innovation,” Hunter said. “Compared to four or five years ago, I don’t think Sen. Sanders will see many folks echoing his concerns.”
Joe Gould was the senior Pentagon reporter for Defense News, covering the intersection of national security policy, politics and the defense industry. He had previously served as Congress reporter.
