Is The Arms Industry Eating The Pentagon’s Lunch?

Stephen Feinberg, Deputy Secretary of Defense, issues a memorandum connected "Supplier Cost and Pricing Transparency."

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The Pentagon is changing its tune connected really to do business pinch the arms industry.

Last week, Deputy Secretary of Defense Steve Feinberg released a memo directing the Pentagon’s contracting officers to get “actual costs information” from arms manufacturers to support “fair and reasonable pricing” connected subject contracts.

The memo is an about-face connected the administration’s weapons acquisition policy. So acold this term, the White House has applied its laissez-faire regulatory attack to its ain bilateral relationships wrong the arms industry, undermining the Pentagon’s expertise to discuss adjacent statement prices connected behalf of taxpayers.

Context

In early 2025, the president issued 2 executive orders titled “Unleashing Prosperity Through Deregulation” and “Restoring Common Sense to Federal Procurement.” They correspond a generational translator of the weapons acquisition process, gutting regulations designed to protect the authorities from value gouging and mendacious claims by subject contractors.

Congress bolstered these orders successful the fiscal twelvemonth 2026 National Defense Authorization Act (NDAA), besides known arsenic the yearly defense argumentation bill. Lawmakers raised the period for subject contractors to supply the Pentagon pinch certified costs aliases pricing information from $2.5 cardinal to $10 million. These information are legally required to beryllium accurate, complete, and current. It is for this logic that contracting officers request certified information to accurately measure whether companies are charging adjacent and reasonable prices connected subject contracts, aliases if they are seeking excess profits.

Lawmakers person agelong crafted legislative loopholes to exempt contractors from certified costs aliases pricing information requirements. The superior statement against them is that they create an outsized compliance load for subject contractors, peculiarly smaller companies pinch less resources and little acquisition successful the subject contracting realm. However, subject contractors person many times grounded to nutrient grounds that costs aliases pricing information submission exacts undue compliance costs.

The existent question

Companies should already person a patient grip connected what the costs of doing business are, because they facet into a company’s profit margins. What constitutes excess profit successful the subject contracting realm is simply a separate, much absorbing mobility than whether aliases really overmuch costs and pricing transparency the authorities should instruction from subject contractors. The management will person to find what it considers to beryllium reasonable profits if it is superior astir realizing the benefits of costs aliases pricing transparency.

In 2021, the Department of Defense Inspector General assumed that profits exceeding 15% were excessive, noting that 15% is the highest profit separator identified successful the Federal Acquisition Regulation. In its audit of a sole-source spare parts supplier, TransDigm Group, Inc., the agency recovered that the institution generated $21 cardinal successful excess profits. However, the Pentagon only uncovered price-gouging by TransDigm because of legislature unit to analyse what immoderate members identified arsenic a “hidden monopolist” intentionally obscuring its costs data.

Similarly, Pentagon analysts uncovered value gouging by Lockheed Martin and its subcontractor, Boeing, aft a high-level Pentagon charismatic ordered a reappraisal of their statement a decade ago. Then-Director of Defense Pricing Shay Assad was already invested successful redeeming Pentagon dollars, and his review led to $550 cardinal successful savings erstwhile the section renegotiated the contract. Prior to the Pentagon’s review, the companies’ profits connected Patriot Advanced Capability-3 missiles approached 40%.

These are conscionable 2 examples of contractors overcharging the government, among many, uncovered by some inspectors wide and auditors complete the people of the past respective decades.

The bottommost line

Contracting regulations beryllium to guarantee the section exercises leverage commensurate pinch its domiciled successful a monopsony market, 1 successful which the Pentagon is the primary, if not the only, purchaser for U.S. subject contractors. Deputy Secretary Feinberg appears to agree, but he will request to specify what he considers reasonable profits to guarantee that the Pentagon does not overpay connected subject contracts.

While it is only a directive, alternatively than a projected statutory aliases regulatory change, Deputy Secretary Feinberg’s memo marks a important displacement successful the administration’s reasoning connected acquisition policy. It is an admittance that the White House and Congress’ hands-off attack to contractor accountability has failed.