Make U.S. Military Contracts Patriotic

The American Army, Navy, Air Force, and Marines should purchase equipment, clothing, and services from U.S.-based companies only. Pro or con?

Pro: Save U.S. Jobs

The U.S. Air Force sparked controversy with its February decision to award a $35 billion contract, one of the Pentagon’s largest, to French company European Aeronautic Defence & Space (commonly known as EADS) and American partner Northrop-Grumman (NOC). The move raised the issue of whether the military should be allowed to accept bids from foreign companies for defense contracts.

Soon after, several Congressional representatives expressed their concern over the decision, and with good reason. Awarding military contracts to foreign companies could bring disastrous results if it turns into a trend.

Awarding military contracts to U.S.-based companies provides a major economic boost by keeping jobs in the country. This is especially important, given the high rate of unemployment and underemployment in the U.S. manufacturing sector. According to Senator Patty Murray (D-Wash.), not giving the contract to competing American company Boeing (BA) could cost as many as 44,000 U.S. jobs. While Senator Jeff Sessions (R-Ala.) defends the EADS contract, saying it would still provide new jobs throughout the U.S., the contract would mean a net loss of U.S. jobs.

Also, Boeing has prior experience working with the military, which should have been taken into account. Furthermore, an Air Force evaluation determined that the Boeing jets had a higher survivability rate than the comparable model from EADS (EAD.PA). Wouldn’t it have made sense for the Air Force to make its decision in favor of the U.S. company, given this knowledge?

Notably, the $35 billion contract was reopened for bidding on July 10, as Defense Secretary Robert Gates said the selection process was biased against Boeing. Whether Boeing or another company emerges as the victor this time remains to be seen. However, it is in our best interest that Gates and other leaders are paying attention to these concerns voiced by both senators and the American people.

Con: Competition Has Its Benefits

Arguments for giving military contracts solely to U.S.-based companies revolve mostly around dependency on other countries, security concerns, and the loss of American jobs. There’s no question that those are important factors, but mandating all U.S. military contracts be bestowed exclusively on U.S companies reeks of protectionism. This could result in harmful repercussions from abroad, costing even more U.S. jobs and weakening our international alliances.

In February, the U.S. Air Force gave a $35 billion contract for the building of midair refueling tankers to the European partners of Northrop Grumman and the European Aeronautic Defense & Space Co. (the parent of Boeing’s rival, Airbus, known as EADS). In early July, however, after a protest from Boeing, the Government Accountability Office said that the Air Force’s decision-making process had been flawed, and the Pentagon announced it will reopen the bidding. This gives Boeing another chance to secure the contract, and would mean the possible creation of up to 40,000 U.S. jobs.

Yet, according to information provided by the Air Force, the bid by EADS-Northrop would provide superior planes at a lower cost. In weighing its decision, the Air Force says it considered mission capability, risk, past performance, cost, and the integrated assessment of the tankers that each company would be able to provide, and Boeing was unable to best EADS-Northrop in even one category.

Regardless of whether the Air Force—as Boeing asserts—incorrectly appraised the advantages of the Boeing bid, the root of this issue goes to free-trade policies and safety. Military contracts should not be solely about U.S. jobs. They should be about what’s best for our country and our armed forces. Maintaining good relations with our neighbors abroad as well as ensuring the safety of military supplies and equipment takes precedence. In this case, investing in America may mean investing abroad.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

imac

If we decide to make government contracts protectionist, we must make all U.S. government contracts protectionist. That means light bulbs, safety glasses, tools for the forestry services, everything. You cannot selectively pick major contracts such as the tanker contract. Also, you cannot change the rules after the proposals have been submitted. Boeing was caught trying to obtain a major contract by deception. That's why an "open and transparent" competitive process was implemented.The NGC/EADS team invested a great deal of money to compete for this contract and gave our government the best value offering. This issue isn't about U.S. jobs: It was raised because the schoolyard bully was beaten and cried like a baby.

PNW Trojan

As with weapons, it's all about bang for the buck. Here in Washington State, our two un-illustrious Senators gave juicy pork awards to contractors, after their lobbyists gave the Senators money. One was for T-shirts that would melt onto the troops' skin. Needless to say, the military wasn't too thrilled. It happens all the time; your tax dollars flushed down a rat hole of corruption, so politicians can get reelected. McCain, where were you when Walter Reed Army Hospital proved to be a disgrace to our troops? And when troops' barracks were filling with raw sewage, mold, and bacteria? McCain is just another Bush--a disgrace.

Skizmo

It's very interesting to see that some people don't let France create stuff for the U.S. army but on the other hand still push for American contractors to rebuild Iraq. Something like that is called hypocrisy.

random

The noise Boeing raised after losing a lucrative contract is plainly sour grapes. Normally in a fuss like this, every protectionist argument comes out to play including jobs--who has more experience working where and how the government owes it to its citizens to only shop U.S. companies.

But there's a much more compelling reason for the U.S. military to rely on only American companies. National security. If I were a general, it would make me somewhat uncomfortable to know that a foreign nation has access to how certain pieces of our military technology are built and operated. Today, the country from which I'm getting combat components is an ally. What about tomorrow? Or next year? What if there's an espionage scandal and the Joint Chiefs want to withdraw all the contracts the military has with the country in question? How are they going to do that? And will it really matter now that this country had access to U.S. combat technology? It's not feasible to totally re-equip your army, navy, or air force in a matter of a few days just to get away from outsourced parts.

No, key military technology should stay in the U.S., not for the sake of mushy patriotism or playing up to populist urges of protectionist politicians and pundits, but for the sake of security and secrecy.

An American Investor

Reality check: Selection of the Northrop Grumman/EADS version does not yield 40,000 fewer jobs in America. That is just more Boeing propaganda. The number of jobs created in America by this tanker contract is virtually the same for both teams as the Boeing version includes a high percentage of foreign products, and the NG/EADS contract actually creates a new domestic large-scale aircraft assembly plant in Alabama with a similar balance of foreign/domestic product as the Boeing version. Having an EADS-related assembly plant in the U.S. is what Boeing and the protectionists Boeing-funded Senators are really trying to prevent from occurring. Boeing's management of deliverables for the military is pathetic of late, hence Northrop Grumman's choice of an EADS aircraft as opposed to a Boeing aircraft. Hence, since Boeing cannot win in a fair competition due to extremely poor performance, they would like to eliminate the competition by media-blitzed lies, lobbying, and Congressional fiat. Boeing and these Senators are not concerned whether this goal continues to rip off the taxpayers, and continues to put troops at risk, despite the cute hypocritical TV ads that Boeing continues to run. They might be more competitive if they spent more in engineering, instead of lobbyists, lawyers, and TV advertising. It's not just the tanker contract that has the NOC ticker outperforming BA of late.

John

"Yet, according to information provided by the Air Force, the bid by EADS-Northrop would provide superior planes at a lower cost."

And yet according to the Government Accountability Office (GAO), this was not the case with the Air Force's selection of the NG/EADS tanker. The GAO report criticized the Air Force selection process for improperly adding costs to the Boeing bid and failing to consider costs associated with the NG/EADS plane. The GAO concluded that if the Air Force had run the selection process properly, there was a "substantial chance" the Boeing aircraft would have been selected. So no, the issue is not about keeping the aircraft in the U.S. for purely patriotic purposes. The issue is about improperly biasing an important military procurement contract toward a state-owned, foreign company, that is currently part of a dispute between the U.S. government before the WTO for receiving illegal government subsidies to develop its products.

GBprof

It is interesting how Boeing is always the bad guy in this case. They had a legal right to protest, and the GAO confirmed that there was a legitimate concern. I am sure that NG would have protested under similar circumstance if Boeing had originally won. It just seems to me that winning under the conditions of changed rules and overlooked data is not much of a win. I am not a protectionist, and I am all for global trade, but there are limits to when this makes sense. Global trade is about buying and selling when others don’t have the capability to create for themselves. I can’t picture France opening up a tanker competition with the U.S. when they have the capability to build their own. To me, aerial refueling represents the backbone of American air power. If it is funded by American tax dollars, it should be an American product. I don’t want my taxes going to France to help finance their efforts to compete for American military contracts. I am all for them competing for commercial ventures and wholly endorse the idea but draw the line on the tanker deal. It is not protectionism; it merely common sense. Too bad there isn't much of that left in our leadership these days.

Lukas

The only really patriotic thing to do is to buy the best the market can offer for your armed forces. What's a factory more or less, here or there, when lives are at stake?

Old Boom

Whether Boeing or EADS is a better airplane, it's up to the military to decide what the requirements are. If the 767 only matches the KC135, then it’s the wrong airplane. Right now there are more than 500 KC135s inventory. I seriously doubt the Air Force will replace the entire number of them with the same number of tankers. Another thing to consider is how fast the supplier can get the aircraft to the men and women who need it. EADS has two aircraft ready to be modified into tankers; Boeing has none (in fact the airplane Boeing is trying to sell has never been built--can say you delays and cost overruns?). The Congressmen from Washington and Kansas need to stop taking the lobbyist money and do what is right for troops. It's very clear no matter how much they want to yell and say, "Buy American," they are guys who do not care about the military people. If this controversy lingers on more, the only war we will be able to fight is one with Canada or Mexico. No aircraft and support a war effort without a tanker. If just one of the KC-135s has a problem or accident and someone is killed or hurt, Congress and Boeing need to be held accountable.

RSG

A truly absurd debate. Anyone who thinks that U.S. defense should be outsourced to the best bidder is either wishing to deconstruct the nation, or benefits financially from such deals.

Free enterprise and free trade are good--to an extent. There are some things where the market shouldn't rule; there are some issues where national sovereignty and independence top out free market theory.

Keep the U.S. defense industry American.

Drew

The question you're asking misses the real issues entirely.

What difference does it make what stock exchange a company is traded on or where its corporate headquarters is located?

Moreover, even if the prime contractor is American (by whatever definition you use), they are still free to use foreign suppliers--and they do.

The real questions, which have nothing to do with economics or fair trade, are:
1) When does outsourcing expose us to espionage and sabotage?
2) What industrial capacity do we need to keep in-country in case our foreign suppliers decide to stop supplying us?

No one, including the authors, seems to be giving much thought to these questions.

logic

Well, in my Army days, it was well known that the German Leopard II tank smoked the Abrams M1 in every field and gunnery test conducted by the U.S. Army. The U.S. tankers were looking forward to replacing the aging M60 with the best tank in the world, the Leopard. But it was not to be. We were force-fed the Abrams instead. Thank goodness the Soviets never invaded Europe, I guess.

Tom

The American contractors think nothing about outsourcing their work to foreigners. So, why should Americans care who gets the contract?

wtbirds92

It only makes sense to buy American when you are talking about military hardware, but unfortunately America's standard of living has made some U.S.-made military equipment unaffordable. The Navy just canceled the DDG-1000 program, because they were afraid the cost per ship would go from $3 billion to $5 billion. The Navy wants a 313-ship fleet, but with these high costs, a fleet of this size is unaffordable. A B-2 bomber alone cost $2 billion per plane. If the cost of military hardware continues to rise, America won't be able to afford a military.

Raj

The fundamental problem is massive corruption and un-patriotism with government contracting in D.C. So contracts are handed to buddies, jihadis, and others whose sole motivation is plundering the U.S. for money. They have absolutely no loyalty to to the country and snuff out innovation, because you don't want to play ball given their crooked ways and unreasonable terms in dealing with small, patriotic businesses who invent things.

So handing a contract to a foreign country if they are a real ally and have a true innovation is not a bad thing. But they are duty bound to ensure that the American economy, innovation, and small businesses get the benefits of these contracts to foreign nations.

Cautious

How about this? Suppose North Korea has created hundreds of nuclear missiles that we don't know about and they are all aimed at the US. We find out about them and start negotiations to try to get them to comply with a political solution, the Koreans refuse, and we start bombing the missile sites. France thinks that this is an unethical thing to do and decides to side with the Koreans. Now the Koreans have access to a superior refueling tanker and access to replacement parts. We are left with an old fleet of inferior tankers plus the new tankers and no replacement parts. Should we outsource things that could affect homeland security to foreign countries? Friends can become enemies overnight. How did this country become the super power it is today? I don't think it was by sharing our military technology with foreign countries or relying on the technology of other countries.

dw

I remembering hearing that we must do this because if we don't, other countries won't buy from us. Truth is, they don't anyway, unless they just don't have local suppliers or somebody that makes that product locally. I looked at all of the military aircraft in the world. Any country with a local supplier of hardware almost always bought locally.

Michael T

The issue centers around whether war breaks out during the period when manufacturers make these planes.

During such a time, if our planes are shot down or just need repair quickly, can we trust foreigners?

Not only the performance but also the sourcing better be very dependable.

That's why I think security concerns trump economic issues of free trade.

ACDC

National defense should not be contracted out, period. Contractors lack security, the process is inefficient, and private fortunes made on our tax dollars are spent on large homes and expensive cars all around the D.C. metro region. This will bite us hard in the future if we continue to put profit in front of security and national defense. We need to stop pretending that we have shrunk the size of government, and stop hiding its real size in a contract-heavy workforce. Government is bigger than before, and private, and when it comes to security and national defense, that is a bad combo. We should just pay our government workers more money and let the U.S. government deal with our foreign interests directly. Again, this is just where our national security and defense are concerned; everything else should be free and open market.

dave l

Everything else (cars, electronics, clothes, etc.) is made abroad, so why not add military products to the list? However, since we are a service-based economy, we should be charging our rich allies for the billions of dollars in U.S.-funded military protection we provide to them.

Aaron

Whatever happened to the blended-wing-body transport concept, which was supposed to be very fuel-efficient?

Jim

The entire debate overlooks the most critical issue. Who builds what for the Department of Defense is not critical in this global economy. What is important is that the Pentagon procurement process, long known for inefficiency and corruption, be reformed. This is not happening. The new RFP is not designed to provide a level playing field, but to justify the original decision, which was obviously biased, with specifications changed to favor one player, improper cost allocations, and numerous other improprieties that confirms what we all know--the Pentagon buys what it wants, whether it is a good choice or not, and even then, they do a poor job of it. As citizens and taxpayers, our concerns should be that our military get the best product, regardless of where it comes from, and that our tax dollars are being efficiently used in its procurement. This is not happening.

Cy Brown

Boeing is a corrupt "American" organization that has been ripping off taxpayers for years. They have already been caught with their pants down and should not be given another chance. They lost the contract fair and square. The idea that American jobs would be lost is an absolute lie. Just another example of politics as usual in D.C. There is no telling how much Boeing pays these Congressmen to put up such an "outcry." It's time to let Boeing sink on its own.

TNT

Yes, Boeing is corrupt. Yes, government is corrupt. France is also corrupt. What really makes the difference is: Would you rather buy a plane made in France or one made in America? Isn't the the real advantage that the U.S. government would have more control over a U.S. manufacturer than one controlled by a company in Europe? From a technology point of view, this is not a major threat, but it could pose a potential supply threat if U.S. alliances were to be severed.

ini

Here in Europe virtually every country has more than two thirds of its military technology manufactured by companies from just one country: the United States. That is true for UK, France, Germany, Spain. Do you see any problem on that? Europeans don't. U.S. technology is usually superior at a lower cost, so that's it. Not on tankers, though. Everyone knows tankers from EADS CASA are superior to most others.

RAP

OK, Boeing will outsource fewer of the jobs to foreign companies, but the edge is really not very much. They, too, would have had a very substantial foreign content in their 767-based tanker. The real difference between the "U.S.-based" and the "foreign-based" manufacturers in this case is the location of the company headquarters. Both companies will employ large numbers of people in the U.S. Both companies are publicly owned, and both have a lot of owners outside their respective national borders. Perhaps the biggest difference is in the sophistication of their respective lobbying efforts.

hs

The U.S. Air Force gave a $35 billion contract for the building of midair refueling tankers to the European partners of Northrop Grumman and EADS
- French President Nicolas Sarkozy has pledged to send 700 more soldiers by the end of the year to help NATO-led forces
- France will join NATO
- Germany pledged $653 million in aid to rebuild Afghanistan.
- Germany, France, and Britain also have been increasingly supportive of other Bush Administration foreign policy initiatives (IRAN).

Gordo

When it takes 20-plus years to get a new fighter plane, like the F-35 and F-22, from concept to active service, there is something wrong with the whole system, and it's not just the manufacturers' fault. The entire military industrial complex--manufacturers, DOD, K-Street, and Congress--needs foreign competition to stir the pot. If Russia was still a relatively free democratic country, we could probably buy a squadron of front-line Migs for the cost of one or two F-22s.

PCK_Brooklyn

Depending on whom you speak to, both sides (NG/EADS and Boeing) will be sourcing components, subassemblies, and critical parts globally. No matter who gets the contract, at least some of the hardware (and software) will be coming from foreign providers.

If I am not mistaken, the NG/EADS deal will result in a new facility in Alabama, which could be used to assemble and service civilian aircraft as well. This aspect is not detailed in the article.

It appears to me as if the order was sufficiently large where the USAF could have recommended a split between both providers, satisfying both sides of the dispute. Now, I have never served, so I have no way of knowing if that concept is entirely practical.

All in all, the question remains whether or not the generals and the contractors looked at the concerns of the pilots and mechanics who will ultimately use the aircraft.

Eno

Nobody is questioning the high quality of U.S. military technology. As one person wrote here, a lot of foreign governments source a huge percentage of their military technology from U.S. companies simply because it is superior in those areas. But in the case of the tankers, the Northrop/Airbus bid was superior technology compared to what Boeing offered. We have to note that not any country in the world can boast of excelling in all areas of manufacturing. Take the new Boeing Dreamliner aircraft as an example. More than half of the parts are outsourced globally.

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