Bloomberg News

Pentagon Contract Winners Go Unannounced as Shutdown Lingers (1)

October 04, 2013

Pentagon

Pedestrians pass in front of the Pentagon in Arlington, Virginia. Photographer: Andrew Harrer/Bloomberg

The Pentagon may have awarded millions or billions of dollars in contracts since the U.S. government partially closed Oct. 1.

Who knows?

The exact amount will remain a mystery for now, because the military said this week it has stopped publicly announcing contract awards. And the Defense Department won’t resume until the shutdown ends.

“During the shutdown we will not be able to publicly announce contracts,” Lieutenant Commander Nathan Christensen, a Pentagon spokesman, said in an e-mail. When it ends, the Pentagon plans to catch up with “one big announcement.”

The military’s awards notices, which reveal competitive and sometimes market-moving information, are closely followed by contractors, attorneys, investors and the media. They are among the government data that has disappeared from public view during the shutdown. The casualties include Census data, agricultural price reports and the Labor Department’s September payrolls report that was scheduled for release today.

The defense-contracts blackout is “difficult to justify from a policy standpoint” and may even be illegal, said Robert Burton, a Washington-based partner at the law firm Venable LLP and former acting administrator of the U.S. Office of Federal Procurement Policy. By law, the Pentagon must publicly announce each day’s awards by 5 p.m. Washington time for contracts valued at $6.5 million or more, acquisition attorneys said.

“If they have time to go through the process of making awards during the shutdown, they should make that information public,” Burton said.

Pentagon Furloughs

James Swartout, a Pentagon spokesman, said the department is aware of the requirements for contract announcements described in the law.

“The personnel that support the announcement of these important contract awards” have been furloughed, Swartout said in an e-mail yesterday.

Pentagon spokesmen didn’t directly answer e-mailed questions about whether the decision to not announce the awards violated federal regulation.

Eric DeMarco, chief executive officer of San Diego-based Kratos Defense & Security Solutions Inc. (KTOS:US), said the awards notices help his company track what competitors are doing. Investors and industry analysts call when they see the company didn’t win.

“They want to know: Why did you lose? What happened?” DeMarco said.

Big Awards

The announcements “give visibility” into a company’s future business, said Sam Pearlstein, an analyst at Wells Fargo Securities LLC in New York.

“Anyone who pays close attention to the defense contractors looks at those announcements,” he said in an interview.

Pearlstein said some contractors may issue press releases for large awards, which would provide another source for some of the data.

The Aerospace Industries Association uses the announcements to track which defense programs are benefiting from increased spending, said Dan Stohr, a spokesman for the Arlington, Virginia-based trade association. The group’s members include Bethesda, Maryland-based Lockheed Martin Corp. (LMT:US), Waltham, Massachusetts-based Raytheon Co. (RTN:US) and Melbourne, Florida-based Harris Corp. (HRS:US)

Industry Letter

“There’s really nowhere else you can get that kind of situational awareness,” Stohr said. “If those announcements aren’t occurring, we don’t have a sense of who is getting what unless the company makes an announcement.”

The shutdown is affecting all aspects of military contracting, according to a letter to Defense Secretary Chuck Hagel from Marion Blakey, president of the Aerospace Industries Association, and retired Lieutenant General Lawrence Farrell Jr., president of the Arlington, Virginia-based National Defense Industrial Association.

The two industry officials said their “most immediate concern” is the absence of contract-management inspectors, who normally audit and approve throughout the manufacturing process. Without their review, that process must halt, they wrote in the letter yesterday.

The organizations also were informed that the Defense Financing and Accounting Service will stop functioning next week, Blakey and Farrell said. The effects on credit lines for small businesses and cash flow for larger businesses, will be “significant in short order,” they said.

More Competition

The Pentagon awarded more than $360 billion in contracts in the year that ended Sept. 30, 2012, accounting for more than two-thirds of government awards. The market has become increasingly competitive as the pool of awards shrinks in part due to across-the-board budget cuts.

On Sept. 30, the last day of fiscal 2013, the Defense Department announced more than $5 billion in contracts, according to data compiled by Bloomberg. The winners included top contractors Lockheed, Chicago-based Boeing Co. (BA:US), Raytheon and Falls Church, Virginia-based Northrop Grumman Corp. (NOC:US)

Last week, Lockheed received two more production contracts valued at $7.8 billion for 71 F-35 jets, a program that has been criticized by lawmakers for its rising costs.

During a budget impasse, the military doesn’t have to stop awarding contracts. It can use money appropriated by lawmakers in prior years.

Daily Notices

The Defense Department typically announces awards each business day at 5 p.m. on its website and in an e-mail that goes to subscribers. It stopped those notices on the first day of the shutdown.

Since Oct. 1, some defense awards notices have appeared in a government database called Federal Business Opportunities, available at www.fbo.gov.

It’s unclear whether all awards of $6.5 million or more have been posted there. In the past, the military’s announcement of awards through the website has been inconsistent, Burton said.

Contracting specialists say they are concerned about the lack of transparency in Pentagon spending during the partial shutdown.

“For the public not to know for days, and perhaps even a number of weeks, about large-scale contract spending is anathema to open government,” said Charles Tiefer, a former member of the U.S. Commission on Wartime Contracting and now a law professor at the University of Baltimore. “This is a form of secret contracting.”

To contact the reporters on this story: Danielle Ivory in Washington at divory@bloomberg.net; Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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Companies Mentioned

  • KTOS
    (Kratos Defense & Security Solutions Inc)
    • $7.17 USD
    • 0.03
    • 0.42%
  • LMT
    (Lockheed Martin Corp)
    • $177.19 USD
    • 1.59
    • 0.9%
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