The Pentagon will not support the merger of large defense companies, which would further consolidate the number of prime contractors at a time when the Defense Department is looking to increase the number of competitive contracts.
DoD acquisition executive Ashton Carter warned against further consolidation in the defense industry during a speech at an investor conference in New York this morning. Carter stressed the Pentagon's desire for competition, a major focus of the "Better Buying Power" initiative first announced by Defense Secretary Robert Gates last September.
"A number of our specific Better Buying Power initiatives are aimed at increasing competition among all our suppliers and throughout our procurement of goods and services," Carter said in his speech, according to a transcript released by the Pentagon. "Sometimes competition is provided by having two or more providers of the same thing go head-to-head, but where this is not possible, we can still harness this power through a wide variety of other competitive strategies that provide real incentives for increased productivity."
That said, Pentagon officials expect market forces to lead to an "uptick" in mergers and acquisitions "and other industry adjustments in the coming period," he said.
DoD "welcomes needed adjustments that lead to greater overall efficiency, but will require transparency with respect to all contemplated transactions," Carter said. "We will examine these transactions to ensure that the Department's long-term interests in a robust and competitive industrial base dominate any near-term or one-time proposed savings, that potential organizational conflicts of interest are avoided or carefully mitigated, and that we have full visibility into restructuring costs and the potential for continuing capital investment and R&D."
Still, DoD will keep the interests of taxpayers and troops in the "forefront in our minds as we review proposals that may result in the creation of weaker stand-alone firms less likely to thrive without the necessary capital structure that their larger parent company is able to provide," Carter said.
Throughout this period, he called for transparency between the industry and DoD.
"The Defense Department would not want to see its industrial base experience what has happened in some other sectors of the economy: poor risk management, unnecessary leverage and excessively short-term behavior at the expense of long-term health," Carter said. "Transparency allows all these things to be addressed early in the process, which is in the interest of all involved."
Carter also stressed the importance of healthy lower-tier suppliers, which "are centrally important to a healthy industrial base."
Pentagon acquisition chief Ashton Carter called for transparency between the industry and DoD during an expected increase in mergers in the near future.
"A number of our specific Better Buying Power initiatives are aimed at increasing competition among all our suppliers and throughout our procurement of goods and services," Carter said in his speech, according to a transcript released by the Pentagon. "Sometimes competition is provided by having two or more providers of the same thing go head-to-head, but where this is not possible, we can still harness this power through a wide variety of other competitive strategies that provide real incentives for increased productivity."
That said, Pentagon officials expect market forces to lead to an "uptick" in mergers and acquisitions "and other industry adjustments in the coming period," he said.
DoD "welcomes needed adjustments that lead to greater overall efficiency, but will require transparency with respect to all contemplated transactions," Carter said. "We will examine these transactions to ensure that the Department's long-term interests in a robust and competitive industrial base dominate any near-term or one-time proposed savings, that potential organizational conflicts of interest are avoided or carefully mitigated, and that we have full visibility into restructuring costs and the potential for continuing capital investment and R&D."
Still, DoD will keep the interests of taxpayers and troops in the "forefront in our minds as we review proposals that may result in the creation of weaker stand-alone firms less likely to thrive without the necessary capital structure that their larger parent company is able to provide," Carter said.
Throughout this period, he called for transparency between the industry and DoD.
"The Defense Department would not want to see its industrial base experience what has happened in some other sectors of the economy: poor risk management, unnecessary leverage and excessively short-term behavior at the expense of long-term health," Carter said. "Transparency allows all these things to be addressed early in the process, which is in the interest of all involved."
Carter also stressed the importance of healthy lower-tier suppliers, which "are centrally important to a healthy industrial base."
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