Law Forcing Space Companies to Sell

Law Forcing Space Companies to Sell

The acquisition reform legislation passed by Congress is forcing major defense companies to sell subsidiaries so they don’t fall afoul of new restrictions forbidding manufacturers from owning companies that advise the government about acquisitions.

The most glaring example appears to be the pending sale by Northrop Grumman of TASC, a company with some 5,000 employees who provide the military and, especially, the intelligence community with technical advice on acquisitions and operations.

Loren Thompson, a defense analyst at the Lexington Institute, just said “yes” when I asked him if the TASC sale is largely being driven by language in the Weapons Systems Acquisition Reform Act drafted by Sens. Carl Levin and John McCain, the chairman and ranking member of the Senate Armed Services Committee. Several experienced space acquisition experts said independently that the TASC sale was being driven by the bill. The relevant text can be found in Section 207 of the bill, which requires the creation of regulations forbidding “organizational conflicts of interest.”


“You could get an ethically pristine arrangement that is bound to end in disaster,” with broad and ethically driven acquisition reform, Thompson said.

Goldman Sachs and Credit Suisse have been hired by Northrop to find buyers, one of whom may be the Carlyle Group. Northrop Grumman’s Aerospace Systems space spokesman, Lon Rains, declined to comment, citing company policy that they don’t speak about pending mergers and acquisitions.

Intelligence community sources say the National Reconnaissance Office, builder and operator of the nation’s spy satellites, is interpreting the bill’s language very strictly. “The NRO is nuts!” said one irate expert. They are being more draconian than anyone else and it is hard to understand why. While there are certainly instances where the same company should not be involved in helping with the requirements during a competitive acquisition they are going beyond this. In fact companies with 40 years worth of experience in a particular specialty are being thrown over the side in search of purity. This is not in the government’s best interest from either performance or cost perspectives. This is all part of the NRO destroying itself and paying attention to process.”

Several of the intelligence community sources cited Lockheed Martin’s Valley Forge operation, which provides highly technical advice to the military and the intelligence community, as a likely candidate for divestiture given the NRO’s approach and the law.

Thompson added that there are so few companies that know much about the technologies and operations of the NRO that restrictions could end up depriving the country of even the semblance of competition. “The problem with any one-size-fits-all approach to acquisition reform is that it leaves so little leeway for individual cases. In the case of the NRO there are only a handful of companies who understand reconnaissance satellites well, so if you start arbitrarily excluding players from the process due to conflicts that could have the unexpected result of creating monopolies,” he said.

Since Boeing’s disastrous management of the Future Imagery Architecture program, the NRO’s business has reverted to the companies that traditionally dominated the contracts issued by the Chantilly, Va. agency, leaving the industrial base there even smaller than it had been.

In addition to the possible creation of monopolies of crucial technologies, the new law may also dry up something that mey be even more precious, the experts say. That is the expertise possessed by companies such as TASC in helping ensure the government buys what it needs, builds it well and gets what it pays for. The government has largely lost the rare expertise needed to assess and analyze the acquisition of highly complex satellite systems, industry and government experts say.

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It’s the Ramo-Wooldridge all over again.

In order to understand the issue in the NRO first one must distinguish between a development contractor and a SETA contractor. SETA contractors typically provide advice and data on how well the developmental contractor is doing. In order to do this, SETA contractors have access to proprietary data and formulate opinions and provide advice based on data such as Preliminary Design Reviews, Critical Designs Reviews, Earned Value Management and development contractor cost data. In order to remain “un-conflicted”, SETA contractors such as TASC can not be “conflicted”. I don’t care how many “firewalls” a company puts up to mitigate OCI, the fact remains TASC provides advice on the cost, schedule & performance of developmental contractors such as Northrup Grumman. It is particularly disconcerting when going through a source selection and we need the advice of a particular subject matter expert but we can’t turn to him because the company he works for is owned by one of the potential bidders.

As far as the contractor base is concerned for SETAs, it is still robust and there are companies who core capability is being a SETA and not a developmental contractor. Companies such as Scitor, IAI, SRS Mantech as well as FFRDCs such as SEI, Aerospace & MITRE.

This is a good thing and not a bad thing. The sky is not falling as a result and the other companies mentioned above will absorb contracts and employees as a result. There will be no perception of conflict and I don’t have to kick my subject matter experts out of the room during a crucial time in a review.

If this bill is supposed to cut out the waste when it comes to defense acquisition, it doesn’t look like it.

The problem isn’t advisement given to the government.

The problem is advice from subsidiaries. Congress is trying to stop this corrupt form of lobbying wherein supposedly independent advisers are not in fact in the pocket of the companies they are recommending.

Congress noticed that none of these companies ever recommend any contractor than the ones who are paying the “advisors”. This is a much needed correction and will do a lot to reduce the waste in US military procurement.

Daniel Russ
Civilianmilitaryintelligencegroup​.com

Daniel Russ: On the other hand, you’re taking it as a given that NRO systems are so generic and so low-performance that many companies are able to produce them. If you need someone to run a mile in two minutes, you may well find that there’s only one person in the entire world who can do it.

True, and that means that the recommendations may not change. However, if the same service can be done by Boeing and NG, but TASC always tells the government to use NG, then that needs to be corrected. If NG knows that it will always be chosen if TASC is advising, what incentive do they have to put process improvements into place?

It’s like asking your car dealer which brand of car is the best for you to buy. If he’s a Toyota dealer, he’s going to tell you to buy a Toyota. But if you ask Consumer Reports, they’re going to objectively tell you what you should be driving.

Daniel & Jeff & COTR,
Before you slam the ethical reputations of a number of Aerospace companies, you may want to do sufficient research to see if there has been any documented evidence of tainted or biased recommendations to the Government.

In my 27+ years of work in the Government and Industry, I am unaware. People who work in SETA companies have much closer allegiance to their customer and their missions than they do to any corporate identity.

Effective firewalls do work by preventing the illegal transfer of recommendations, etc. However, the issue is one of appearance (one that you fell into) and that is always in the eye of the beholder.

The effects of this new law will be widespread as there are few if any Tier 1 or Tier 2 Aerospace and IT companies exempt from this language. The prospects for fire sales and destructive impacts to Government customers missions are Huge.

@Radarnav,

No one is going to document their own bias. If you want documentation that it actually happened, then you can go to the CBO and they keep records of these matters, or Google the topic and find literally hundreds of articles written on the subject by what is left of our o called media. It should be available and free since it’s paid out of your tax dollars.

The bias has been uncovered by Congress, that’s why the rule changes are being put forward and they are put forward to do one simple thing: make sure that weapons manufacturers are not paying the salaries of the consultants who tout their products.

If the firewalls worked, the rule changes wouldn’t have been offered. These changes were not written or offered in a vacuum. They were born because enough people in the process see it as a conflict of interest.

@DensityDuck

If negotiating government contracts were as difficult as running a two minute mile, then there would only be a handful of people negotiating government contracts. In fact, there are tens of thousands of them. So finding the right expert on a weapon system, or finding the right price to charge the tax payer shouldn’t be as hard as finding a super fast runner.

It wasn’t too long ago that high level government officials were recommending the Boeing tanker refit as the new air to air refueler. Then people caught wind of the fact that the high level officials had interests in the contract for Boeing.

That said, this is an attempt to keep waste out of procurement, and make sure that Congressional officials, who control the purse-strings on these contracts, hear the advice of people who are truly independent, not on the dole.

Daniel Russ
Civilianmilitaryintelligencegroup​.com

Daniel: You miss my point. My point is that most of these missions are so fantastically complicated, and so heavily dependent on prior experience, that there is literally ONE TEAM that can provide vehicles to perform that mission. It’s not “government-industry collusion” for the NRO to go to whoever builds the Keyhole vehicles and say “hey, can you perform an incremental upgrade”.

DensityDuck,

Let’s say there is only one team that can do the job. If there is an advisor advising Congress that this particular weapon system is the only way to go, then it still smells fishy when the advisor is being paid by the manufacturer.

You probably know a lot more about this than I do. But I wonder why the Russians have MIG, Sukhoi, Tupelov, Ilyushin, Beriev, Antonov, etcetera to bid one one project and we have Boeing and Lockheed/Grumman. Why if our global rivals have actual competition that all have expertise in fantastically complicated projects, why can’t we do this too? Because the defense department consultants (lobbyists) and the manufacturers have been far too close to each other for decades.

The problem is systemic. We do not really have competitors. We have a system that seems to be gamed by the companies who build the equipment and the companies that promote them. This leads to waste and questionable procurement patterns.

It has to stop somewhere. We have to have more than one team that can do the job. And if the pressure doesn’t come from Congress, who will fix this?

Respectfully

Daniel Russ
Civilianmilitaryintelligencegroup​.com

I would think having a variety of advisors would reduce the problem of biased advice. Hasn’t the government effectively directed the favored contractors (“unconflicted” when in fact they often have or develop conflicts of their own) to prey upon the now disvalued assets and employees of the unfavored contractors? Government was advised of potential for OCI and accepted it, and now is changing the rules including selection of winner and loser contractors on the basis of perceived bias and on the advice of the favored companies. Seems like a process with its own OCI and biases.

Russ:

– Thankfully, MIG, Sukhoi, Tupelov, etc have never built systems that can compare with any of ours.

– Competition is good and the taxpayer benefits. Awarding conracts to companies with no technical experience in the field (such as Boeing and FIA) was ludicrous. Past performance matters, and every acquisition study repeatedly shows this. Unfortunately, govt RFP processes are so watering down the past performance evaluation in RFPs that all competitors are scoring the same, essentially removing this as a discriminator. Companies that are outside the program cite their management skills, but they have no technical skills, and if they win, these programs are in trouble from the outset.

Advisory and Assistance (A&AS) personnel change badges (switch companies) as A&AS contracts are re-competed because their allegiance to the “program” or “product” is higher than their allegiance to their “company”. Those of us who are committed to this business understand and accept this because it is in the best interest of the agency’s mission.
There is no real reason for developers to be in the A&AS business other than greed. OCI requirements should be strictly enforced, and anyone who claims that a “critical capability” will be lost is unfoundly biased!!!!

As a US citizen, I understand what the WRARA’s intention is…to ensure TASC’s SETAs don’t give NG mothership (mission systems, etc) an unfair advantage over other OEMs. I get that. As a former Air Force Chief Master Sergeant and now a TASC employee I understand too where my loyalty is…to my Air Force customer…NOT TO NG proper. For it is my customer who renews or discontinues my contract each year…NOT NG proper. My allegiance with my customer is forged through day to day contact over the course of the fiscal year. I see my NG TASC leadership about once a year.

As the article above states, That which I am sworn to do is to “…ensure the government buys what it needs, builds it well and gets what it pays for.” And I’ve never objected to ANY amount of scrutiny or oversight of my SETA activities 24/7 in this respect. Bring on whatever GAO or IG Team you want…my performance as a SETA is ALWAYS open for review.

At the end of the day however, I understand too that OCI does distill down to a matter of perception. If we SETAs are hip deep in advising our customer concerning or even evaluating an NG Mission Systems product, there are some who would look at that and cry foul…rightly or wrongly. Perception is reality in the mind of the individual. It’s a shame we TASC SETAs can be trusted with the nation’s highest secrets, but we cannot seem to earn the trust of the nation concerning this issue of OCI.

Chief, as you pointed out perception sometimes is reality and that’s all it takes for morale, complaints, etc to stir the pot.

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