WASHINGTON — The Pentagon's acquisition chief reiterated his concerns about consolidation among prime defense contractors Tuesday, saying he wanted to initiate a conversation about competitive balance among the DoD's top suppliers.
Speaking Tuesday at an acquisition forum hosted by Defense One, Frank Kendall said he was not trying to criticize Lockheed Martin's $9 billion acquisition of Sikorsky Aircraft, which received the go ahead from anti-trust regulators at the Department of Justice last month.
Rather than commenting on that deal specifically, Kendall said he was concerned by the trend toward fewer prime platform contractors in the defense industrial base.
"I think the trend is a little troubling, and I think the tools that we have to manage that trend are inadequate based on my recent experience," he said, noting that the Lockheed-Sikorsky deal was one of the largest in recent memory.
"If this trend continues, which is what I was pointing out, we will end up at the point where we have two or maybe three primes who are essentially the sources for all the commodities being bought. And it's just a fact that with size comes the ability to have influence over things like the budget, or how acquisitions go, simply because you have the financial resources to invest strategically to capture market share," he said.
After his remarks, Kendall told reporters that he had no issue with corporations working to enhance value for their shareholders.
"The government, on the other hand, has an interest in maintaining a good, competitive environment and maintaining a range of suppliers. The tools that I've discovered we have to manage that are more limited than I realized," he said.
Kendall said he was happy to work with Congress on the issue, possibly by legislating a national security consideration into anti-trust deliberations.
"The anti-trust regulatory regime by statute is essentially about competition, and direct competition, and not having a significant reduction in direct competition," he said. "I've got my team thinking about policy alternatives we can put in place. I think we probably need to work with the Hill on this."
In speaking with reporters, Kendall acknowledged the issue can't be addressed by policy changes from the Pentagon's acquisitions office.
"What's allowable in M&A [mergers and acquisitions] is not governed by my policy, it's governed by law, [and] the limitations on the legal tools that we have available to constrain companies. I can talk about things and give people my preferences, but industry is not generally constrained by that," he said.
In a column published Tuesday, Loren Thompson, a defense-industry consultant and analyst with the Lexington Institute, wrote that Kendall seems to misunderstand the motivation driving consolidation among major defense contractors.
"Secretary Kendall doesn't seem to grasp that the behavior of his suppliers is driven largely by the cues they get from their monopsony customer — the government," Thompson wrote. "The reason they charge so much for weapons is because of the requirements and practices dictated to them by the government. The reason they don't innovate the way Silicon Valley does is because they aren't rewarded for doing so. And the reason they have consolidated into a handful of defense conglomerates is because that's the safest way of dealing with a federal customer that frequently changes its plans."
Email: aclevenger@defensenews.com
Twitter: @andclev
