Copyright © 2002 The International
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Tax dollars pay for military projects. Yet the way the Defense Department contracts with its suppliers, experts say, gives few incentives for good performance. Last week brought a case in point. On Monday, the U.S. Air Force extended by three years Lockheed Martin's share of a contract for a long-overdue chain of high-altitude satellites, intended to spot enemy missile launches. The contract, initially priced at $1.8 billion in the mid-1990s, will now cost $4.2 billion. For failing to deliver on time and within its budget, Lockheed was penalized at least $99 million over the last couple of years. A law required the air force to either recertify or cancel the ballooning program - and 20 others like it - in May. Recertification came on May 2, but Lockheed's share price barely quavered. It also hardly budged when the contract was extended last Tuesday. Most likely, analysts and investors had correctly assumed that recertification, and a bundle of new money, would arrive. They might also have assumed that Lockheed's poor performance would not cost the company any consideration for future contracts. During the past 15 or 20 years, said William Rogerson, a professor of economics at Northwestern University, the Defense Department has lost much of its ability to punish poor performers. "There had always been, over the medium run, relatively intense competition to get the next program," Rogerson said. "You did that by performing well on this program. That's becoming less and less the case." Often, as in the case of Lockheed Martin's satellites, the Pentagon cannot threaten to use an alternative military system to pressure a supplier. But when F-18 fighters were being built, Rogerson said, they had to compete with F-14s and later with the Joint Strike Fighter. Steven Grundman, a former deputy undersecretary of defense who is now a consultant, said growing contract areas, like surveillance, could offer competition among ground-based, air-based and space-based platforms. Rogerson said he considered this type of competition far more important than any incentives that could be built into a single contract. But setting incentives can be difficult, he said, because contractors know far more about their productive abilities and technical challenges than the government does. Copyright © 2002 The International Herald Tribune |