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.