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NG Sale Sparks Industry Changes

By Colin Clark Monday, November 9th, 2009 9:45 am
Posted in Intelligence, Policy, Space

When Senators Carl Levin and John McCain drew up the Weapons Systems Acquisition Reform Act, it’s hard to believe they knew they would help reshape an industry. But that is exactly what is happening as a result of the conflict of interest provisions written into the bill. Proof of that came this weekend with Northrop Grumman’s announcement that it was unloading its TASC unit and selling it for $1.65 billion in cash to an investor group led by General Atlantic LLC and affiliates of Kohlberg Kravis Roberts & Co. L.P.

The company, which declined to comment when asked earlier about the reasons for the pending sale, came clean this time, with CEO Ron Sugar laying out the case to protect the company’s large amount of highly classified sensor and satellite work.

“This transaction is in the best interest of Northrop Grumman’s customers, employees and shareholders,” Sugar said. “Northrop Grumman’s desire to align quickly with the government’s new organizational conflict of interest standards, while preserving TASC’s unique organizational culture and its status as the advisory services employer of choice. TASC is a remarkable organization with a proud 43-year heritage of supporting critical national security missions. We are confident the investors understand the critical importance of its customers’ missions and the depth and sophistication of its employees’ expertise.”

The nub of the issue is that the acquisition reform bill prompted the nation’s spy satellite maker and operator, the National Reconnaissance Office to issue a memo less than a month after President Obama signed the Weapons Systems Acquisition Reform Act into law, detailing its adamant stand against the possible appearance of any corporate conflicts of interest.

The memo said that any company that does not comply with the conflict of interest requirements, “will also be prohibited from bidding on or participating in any NRO contract to supply the system(s), or any major component thereof, or from serving as a subcontractor, vendor or consultant to the system supplier or major component supplier or major component suppliers on any system related to the work while in a non-conflicted status.”

TASC and Lockheed Martin’s Valley Forge unit both perform this sort of advisory work to the NRO and other three-letter agencies. There are other smaller units in other companies, but these are the heavyweights in the industry.

In our earlier story breaking the news of the NRO memo, a government official made the case for enforcement of the conflict of interest provisions: “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 Northrop 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,” the official said. “This [enforcement] 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.”

Northrop Grumman’s press release included the usual cautionary notes about the sale being subject to regulatory and legal review, including Hart-Scott-Rodino approval. The transaction is expected to close by year end, according to Northrop’s release. But this will certainly not be the only sale prompted by the recently passed legislation. Although the company will not comment publicly, Lockheed Martin sources have told me that their Valley Forge unit will almost certainly have to be sold to keep the company from running afoul of the conflict of interest provisions. And Lockheed probably has more at stake than does Northrop, due to the large quantity of black satellite work it performs, including the new electro-optical spy satellite system recently approved by President Obama. The acquisition reform bill, and the NRO’s strict interpretation of its language, puts up to $10 billion in Lockheed business at risk, according to several knowledgeable sources.

Among the companies which provide similar advisory services for highly classified programs, as well as unclassified satellite programs, are Scitor, IAI and SRS Mantech. Of course, there are also the federally-funded creations known as FFRDCs such as the Aerospace Corp. and MITRE.

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	Byron Skinner November 9th, 2009 at 2:18 pm Good Morning Folks, Let’s see separating manufactures of weapon systems form owning think tanks that are little more then thinly disguised lobbyists to Congress and the DoD. The ultra secret NRO is surly big enough to have its own staff of experts on the public payroll that know what their project needs are and the state of technology. If outside consulting is required that certainly should come from a company that doesn’t have a vested interested in any future contracts to produce hardware, software. courseware or any other purchased services or products. Did I miss something here, why is this not good? ALLONS, Byron Skinner
	Colonial-Marine November 10th, 2009 at 12:04 am Byron Skinner, the problem is that historically congress has let the military “go to seed” on too many occasions. Without such powerful lobbies will we see a steady decline of our military might? Defense is such a huge target for so many foolish congressmen.
	Cynical Employee November 10th, 2009 at 1:55 am Well, I am directly affected by this transaction — and in a very negative way. I spent almost 20 years at NG, and now I am getting kicked out of my own company and moved to TASC because I have been on a SETA contract for the last several years. I spent most of my career on development contracts and it is that experience that proves invaluable to advising my government customer. Most of the COTRs are young and inexperienced and need guidance to evalutate contracts. If you don’t allow people to gain experience on both sides of the fence, they will be of no use advising the government. The govt personnel have to move around to get ahead, and don’t see projects through to the end. The SETA staff end up providing the continuity and history on most large programs.
	Byron Skinner November 9th, 2009 at 10:32 pm Good Evening Colonel Marine, Although congress has to share the blame for the current mess the military is not blameless. The careerism that call for two year tours and moving is destructive at all levels of the military from Company Commanders to Battalion Commanders, Regimental commanders etc. At he staff officer levels it is little more then a revolving door, with officers jumping from job to job, solely for the benefit of a new mentor for their careers, sometimes with only a few months on their previous job. I would thing that one solution to this problem is a min. of four years in a command slot and three years in a staff assignment before a transfer would be considered and retirement of 07 or higher of officers at 65. Set the only permanent rank for retirement before 65 as 06. General/Admiral who put in for retirement before reaching 65, in effect all Flag officers would be brevet officers. If they chose to retire before age 65 would have his/her retirement pay reverted to 06. There are solutions to these problems but with Congressmen like John Murtha and an entrenched system of promotions, nothing will ever get done. Even in time of war to many if not most military officers their own career is out above duty, honor and country. To Cynical Employee, it is regrettable that you had to lose your job especially after so long of a run at NG. I would say that you are the victim of several things including a buy out by a venture capital group who could care less about national defense and more about return on equity, and unfortunately older longer serving employees such as yourself earn more money, it is unlikely that any consideration at all was given to you experience or depth of knowledge, and thus are the first cost cuts. The big losers of course are the American people and the taxpayer. Good Luck in finding another job. ALLONS, Byron Skinner
	Byron Skinner November 9th, 2009 at 10:34 pm To Colonel-Marine, Happy Birthday tomorrow. ALLONS, Byron Skinner
	Elec Tech November 11th, 2009 at 5:20 pm I would agree that it sucks. However, there are always new opportunities. Being more of a technical than acquisition type, what do you do? I ask because I know people who may be hiring for future needs.
	Guest November 11th, 2009 at 7:29 pm It is hard to be or become a subject matter expert with out actually doing it. “Those who can do, those who can’t advise… “. Separating the cost/schedule from the technical advising, allowing the technical adivsors to be of the development (doers) makes a lot more sense.
	VancBob November 12th, 2009 at 11:46 pm Would someone offer an explanation as to why our massive military acquisition departments seem to rely so heavily on our contractors to determine what their needs are, how to define a programs requirements, how to manage the projects? Why is it that our defense industries have been allowed to permeate the whole acquition process so that they seem to determine the entire life cycle of major systems. Has the DoD become completely emasculated and ineffectual? This is an oversimplification but our warfighters should be in the best position to determine requirements. Our DoD acquisition departments who sign the checks should be calling all the shots and not asking industry what to do. I suppose Congress can be blamed too for their political inputs as they seem to think defense production is merely job related for their districts. Why is the DoD so incapable of getting anyrhing accomplished effectively and efficiently? The last time it was able to that I recall is the F-117 program. Credit the AF and Lockheed for that success story. Contrast that to the Boeing program that received $1 billion to build two new spysats that only flew into the shredded sat recycle dumpster behind their production facility.
	DensityDuck November 17th, 2009 at 8:33 pm Why do you suppose a 17-year-old high-school student decides to join the Air Force? 1) To fly awesome jet planes and blow up bad guys 2) To be the Third Assistant Contract Review Manager for the Joint Service Light Ranged Attack Submunition Interim Life Extension Upgrade Study Program I really doubt that it’s #1. The motivated and smart people all go for the combat services, because that’s what they WANT to do. What we need is a civilian acquisition corps in the DoD–but to do that, we need for the services to admit that there’s a world beyond the USAF/USN/USA/USMC. Good luck with THAT. It doesn’t help that when a long-time service member transfers his knowledge and experience to a contractor, we’re told that it’s just another money-grubbing pork addict feathering his own comfy bed at the poor broke-down taxpayer’s expense.