Opinion from a Libertarian ViewPoint

Pentagon diverted small business fund to defense industry giants

Posted by M. C. on July 15, 2022

A new report finds that in a single year, Raytheon, Lockheed Martin, L3Harris, and others got more than $300 million meant for smaller firms.

The pentagram is protecting…but it’s not you.

Written by
Tevah Gevelber and Connor Echols

In just one year, more than $300 million earmarked for small businesses ended up going to Lockheed Martin, Raytheon, L3Harris, and other top defense contractors, according to a recent report from the Project on Government Oversight (POGO).

The funds come from a pool of $33 billion that the Pentagon set aside to support small businesses in the defense industry, which have rapidly disappeared as the military sector has consolidated in recent years

Experts say this misuse of funds threatens to force more small companies out of business, eliminating competition and empowering defense giants to drive up prices. 

And since the program uses middlemen, taxpayers end up paying extra for gear from companies that have no problem selling directly to the Pentagon.

The sheer size of the program also allows officials to make big claims about supporting small businesses while pumping money toward traditional defense giants, according to Robert Burton, a lawyer who previously served as a high-level federal procurement official. 

“We don’t generally have $33 billion contracts over 10 years,” said Burton. “This one is special because the DoD is getting credit for all $33 billion going to small business.”

David Goodreau, the president of the Small Business Aerospace Industry Coalition, said small businesses that contract with the Pentagon are tired of big promises with little payoff.

“There’s all kinds of reasons to exercise supply chain contraction, but not at the expense of telling everybody in your marketing materials and at your conferences […] about how you’re doing more for small business,” Goodreau said. “It’s a lie.”

Not your mother’s small business

The Tailored Logistics Support (TLS) program is administered by the Defense Logistics Agency (DLA), which conducts acquisitions for military services. The program manages the $33 billion small business contract, which it subcontracts to four intermediaries. The resellers are in turn supposed to fulfill their orders by purchasing from small business manufacturers. But not all of that money is getting where it’s meant to go.

To understand how this is happening, let’s look at one of these four intermediaries: Atlantic Diving Supply (ADS), which gets the vast majority of its revenue through the TLS program. At first glance, it might be hard to consider ADS — a corporation with more than $1 billion in annual revenue — a “small business.” But it plays a key role in the program, according to Nick Schwellenbach, the POGO report’s author.

“The idea of the program is that all sorts of federal agencies […] can go to DLA and say, ‘We have some special ops guys, we have some troops who need knives or rifle scopes or new boots, and we don’t want to go through the traditional contracting process. We want to do this quickly,’” Schwellenbach said.

Intermediaries like ADS, which have the know-how to work smoothly with the Pentagon, can in turn seek out small businesses to produce the gear and then sell it to the government. As Schwellenbach argues (and the Pentagon implies in its marketing), contracting to small businesses speeds up procurement, generates new ideas, and keeps prices low by encouraging competition.

But there’s a loophole in the system: ADS can contract out to businesses of any size if it gets a waiver approved by the Small Business Administration. 

See the rest here

Be seeing you

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