Beltway Bandits, Cronyism and the DoD’s Exclusive Contracts
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The Pentagon’s crony capitalism, aka military procurement, never sleeps.
According to reports, Amazon Web Services (AWS) is the clear frontrunner to win a sole source, 10-year, $10 billion contract from the Department of Defense (DoD) to handle all of its cloud computing.
The case for a sole provider, however, is underwhelming, with critics saying the idea of putting all of the DoD’s computing on “one cloud” is unheard of. Congress should direct the Pentagon to do the right thing, not collude with a new member of the multi-trillion-dollar military-industrial-counterterrorism complex.
Amazon’s current market capitalization exceeds $750 billion, making it the second most valuable publicly listed company in the world after Apple. Post-retirement employment or consulting opportunities for DoD personnel involved in procurement concentrate the mind wonderfully.
The lamp of experience teaches that military procurement is to procurement as military music is to music. The Pentagon would be bankrupt if it held no government monopoly on the armed forces. The day before 9/11, Secretary of Defense Donald Rumsfeld reported that $2.3 trillion in spending by the DoD could not be documented. Although required by law, the DoD has never been audited (though it’s supposedly in the midst of its first one now). In the meantime, a recent internal audit of the Defense Logistics Agency found that the agency could not provide proper documentation for more than $800 million worth of construction projects, among other abnormalities. No private investor would invest a penny in such a financially feckless enterprise. Even Saudi Arabia’s fabulously wealthy ARAMCO underwent an outside audit in contemplation of stock sales.
The DoD’s byzantine but also lackadaisical procurement standards give birth to chronic financial disasters. These include Lockheed Martin’s huge Air Force C5-A transport plane’s cost overruns and performance deficiencies; General Dynamics’ Electric Boat Division’s production of the Navy’s SSN-68 Attack Submarine at a hugely inflated sum despite major construction flaws, and, more recently, Lockheed’s F-35 Joint Strike Fighter, the most expensive weapon system in the nation’s history (and still in testing stages after nearly 20 years).
Lax procurement safeguards also invite corruption. Thus, Darleen Druyun, principal deputy assistant secretary of the Air Force, was convicted of bribery in 2004 for awarding a $23 billion sole source leasing arrangement with Boeing for 100 KC-767 mid-air refueling tankers in exchange for a lucrative post-retirement position with the mainstay of the military-industrial complex.
More recently, two U.S. Navy captains and a commander faced court martial in the so-called “Fat Leonard” scandal in which a charismatic Malaysian businessman was able to bilk the Navy for $35 billion in fuel charges, mostly by bribing officers with lavish gifts and prostitutes. Some 200 people have been connected to the scandal with at least 18 Navy personnel pleading guilty to federal crimes or charges under the Uniformed Code of Military Justice. Leonard Glenn Francis, also known as “Fat Leonard,” continued to get lucrative DoD contracts for years despite repeated calls for investigation.
The DoD’s contemplated 10-year exclusive cloud computing contract with AWS predictably carries earmarks of procurement amateurism, bias, and even influence peddling. Other suppliers are no slouches, including Microsoft, IBM Corp., and industry groups representing rivals such as Oracle Corp. They know that, according to this Bloomberg report, that Amazon has increased its lobbying presence in Washington by 400 percent over five years and has lobbied Congress on no fewer than 24 issues (each would include dozens of laws and regulations, including relaxing rules for flying commercial drones, for their deliveries, specifically).
According to recent reporting from the Project on Government Oversight (POGO), Amazon spent $37 million on lobbying last year and gave $1 million to candidates of both parties.
Those efforts appear to have paid off last year with the passage of the so-called “Amazon amendment,” a provision tucked into the defense authorization bill that will establish a program facilitating government purchasing through e-commerce portals like Amazon.com.
A full-court press on specific agencies is no different. According to Bloomberg, Amazon’s lobbying netted the cloud contract for the CIA, and an earlier contract with Pentagon for $950 million. In 2016, Bezos was appointed to the Defense Innovation Advisory Board, to ostensibly help the Pentagon with new technologies. He also hosted Defense Secretary James Mattis at Amazon’s Seattle headquarters in August 2017.
It doesn’t hurt that the revolving door of top Pentagon officials who retire and then work for industry players, or serve on their boards, only to push and lobby for contracts and weapon systems the military doesn’t even necessarily want, is notorious. In 2010, then-Boston Globe correspondent Bryan Bender analyzed the career paths of 750 “of the highest ranking generals and admirals who retired during the last two decades.” He found that, “for most, moving into what many in Washington call the ‘rent-a-general’’ business is all but irresistible.”
From 2004 through 2008, 80 percent of retiring three- and four-star officers went to work as consultants or defense executives, according to the Globe analysis. That compares with less than 50 percent who followed that path a decade earlier, from 1994 to 1998.
According to POGO, citing statistics from the watchdog group Center for Responsive Politics, 59 of Amazon’s 90 lobbyists are “revolvers” who had previously worked somewhere in the federal government.
But why can’t the Pentagon see its way clear past all of the heavy sell for these sole-source contracts? Diversity of risk is business gospel, i.e., don’t put all your eggs in one basket, and the DoD’s nuclear triad is anchored in that truth. Multiple suppliers diminish the risk of non-performance. They also diminish the risk of technological obsolescence, which is exceptionally high in our digital age of warp-speed advances. They lessen the risk of hacking from Russia, China, Iran, North Korea, and other enemies of the United States. Indeed, AWS has sold computing equipment used in its cloud services in China to its local partner there, Sinnet Technology Co. That collaboration heightens the risk of China hacking into AWS’s cloud services to DoD.
Multiple suppliers lessen the risk of procurement corruption like the Darleen Druyun-Boeing scandal by making concealment problematic. Druyun’s email correspondence revealed a consistent pattern of favoring Boeing in price negotiations; she had previously tilted two other contracts towards Boeing worth $500 million while arranging Boeing jobs for her daughter and her daughter’s fiancé. The more players involved in a procurement award, the less likely it is that corruption will escape detection and exposure by a whistleblower or otherwise.
Multiple suppliers would also slash the $10 billion figure for cloud computing services if provided exclusively by AWS. When AT&T lost its phone monopoly, the cost of long-distance calling dropped to a fraction of its prior rate. There is no reason to believe the market for cloud computing services to the Pentagon would operate any differently.
The Pentagon has refused to explain its winner-take-all approach to its $10 billion cloud services contract. Taking umbrage at an inquiry, the agency snapped: “This rationale is not going to be published at this time.”
Cloud computing services and cybersecurity are too important to be left to the generals. Congress should brandish its legislative prerogatives to force DoD to use multiple cloud computing service providers. Otherwise crony capitalism will continue to be at its worst in the Pentagon.
Bruce Fein was associate deputy attorney general and general counsel of the Federal Communications Commission under President Reagan and counsel to the Joint Congressional Committee on Covert Arms Sales to Iran. He is a partner in the law firm of Fein & DelValle PLLC.