Bill Greenwalt, long the top Republican acquisition policy expert on the SASC, rose to become deputy Defense undersecretary for industrial policy. A member of the Breaking Defense Board of Contributors, he’s now a fellow at the American Enterprise Institute.
Buy American Earmarks Slip In: Defense Committees Must Act
Almost ten years ago, Congress tried — after much self-flagellation — to do away with earmarks by declaring a moratorium on their use. An earmark was defined in House and Senate rules as any congressionally directed spending, tax advantage or tariff that would benefit an entity or a specific state, locality or congressional district. Members at the time, such as Senators McCain and Feingold, teamed up on a bipartisan basis to outlaw this practice as voters were put off by instances of real corruption or the appearance of corruption from the nexus of congressional earmarks, lobbyist favors, campaign contributions and gifts.
In today’s increasingly transactional political world the concept of trying to avoid the appearance of corruption may seem quaint. Still, the sponsors of congressional pork found new methods over the last decade to hide earmarks and not just add money to an appropriations bill. This was helped by the fact that the policing of earmarks was left to the committees of jurisdiction and the fox has not always done a good job of guarding the henhouse.
One of the more insidious tools in the new arsenal is the policy earmark that directs benefits or contracts to a single source through a legislative requirement to implement policy in a certain way. It is not always easy to find out who the beneficiary is, but once in law they are the earmark that keeps on giving. Some of the best examples of these are Buy America contracting requirements.
In the last few years, Congress has earmarked several everlasting sole source contracts through Buy America policy legislation. For example, the New England states teamed up on the 2017 National Defense Authorization Act (NDAA) to cover running shoes under the Berry amendment to give New Balance a contract monopoly. In the 2020 NDAA, the procurement of flatware and dinnerware was restricted to U.S. sources to give Oneida in New York a corner on the market. This occurred after Sen. Chuck Schumer intervened and threatened to stop the bill from getting floor time unless the Oneida giveaway was included in the bill.
Of course, the national security damage from restricting competition for running shoes, plates, and forks is pretty limited, but it does serve as a potential warning that crony capitalism and special interest corruption is alive and well. However, a proposed expansion of another sole source earmark that was slipped into last year’s NDAA actually would negatively impact the warfighter by restricting technology options to potentially inferior ones on something that really matters — naval ships.
This earmark was helpfully pointed out in the letter to Congress by 25 of our closest allies that I wrote about a few weeks ago in Breaking D. In that letter, our allies also raised concerns with Section 823 of the House version of the 2021 NDAA that would require that engines and other components for US Navy auxiliary ships be manufactured in the National Technology and Industrial Base (NTIB), which consists of the US, Canada, Australia, and the UK.
It actually takes a bit of work to peel back the onion to determine that this is a policy earmark designed to eliminate competition and bestow a monopoly for ship engines to a specific domestic company. Despite a smokescreen to allow bids from the NTIB there are no manufacturers in the UK, Canada, or Australia capable of producing the types of engines used for Navy auxiliary ships. Even the Brits, Aussies and Canadians have objected to the provision because they know the legislation is a farce.
The few companies in the NTIB that do manufacture large marine engines are located in the United States, but most of them do not produce engines suitable for Navy auxiliary ship applications either. In fact, there is only one company in the United States capable of meeting the requirements — Fairbanks Morse, located in Wisconsin.
As a result, Section 823 creates an effective sole source for this company on upcoming new U.S. ship buys.
Such sole sources are inherently harmful to the Navy and US taxpayers. Competition results in the acquisition of the best capability at the lowest price. Section 823’s elimination of competition would needlessly drive up costs and limit the capability delivered to the Navy. Our military personnel deserve better.
Sole source requirements may become temporarily necessary to protect a fragile domestic supplier. This does not appear to be the case since, according to Fairbanks Morse’s own advertising, the company has contracts to manufacture approximately 80% of the Navy’s propulsion diesel engines that were the subject of a sole-source earmark in last year’s 2020 NDAA. They enjoyed this success in what was once a competitive environment, where non-US engine manufacturers from Finland, Germany, and Italy were allowed to compete fairly for the work. This is not a disadvantaged domestic supplier being undercut by foreign competitors that needs Congress to keep them afloat by eliminating competition.
Of course, there is never a guarantee of future success and that may be what is driving the lobbying this year for a more expansive earmark to cover all engines as well as likely earmarks for associated components such as propellers. It is also possible that last’s year’s earmark was not deemed comprehensive enough as it may still have given the Navy some slight flexibility to buy what is best for its sailors and marines. That is going to get harder and harder to do as the US may have already lost its innovative edge in the naval engine market. To stay technologically relevant, even new engines built in the US may need to be based on European designs with imported components.
To make sure that never happens the HAC-D in section 8129 of this year’s defense appropriation bill has helpfully included their own policy earmark to prohibit such superior designs. Thus, the House’s combined approach in both authorization and appropriations bills is to give one U.S. company a 100% monopoly now and into the future to keep selling the Navy older and obsolete technology.
The Senate authorizers and appropriators should reject these provisions as blatant earmarks that should not have survived House rules, let alone Senate rules. Congress should also establish a mechanism to repeal past policy earmarks by requiring real competition for any legislatively forced sole source contract in existence.
In future, as Congress considers similar domestic source restrictions it should adhere to a criterion of maintaining at least two sources of supply for defense needs to maintain competition. If there is only one source in the US, we should look to our allies for a second source. If Congress makes a determination that a capability needs to be only produced in the U.S. and there is only one source of supply then it should create a second source. Congress should guarantee that second source at least a 50% market share such as is current policy for depot maintenance workload.
In fact, public shipyards and depots could be a good alternative source of supply in these cases, particularly if they were incentivized to partner with other private sector providers for the best designs and technology. Perhaps future congressional supporters of sole domestic producers who have already locked up more than half of a market would be deterred from proposing monopoly creating provisions if faced with the prospect of losing market share to a public competitive option. That might be wishful thinking where greed and parochialism often trump national security concerns, but one can still hope.