As Defense Department spending and the percentage of DoD spending going towards contracts have both declined since sequestration began, no clear trends on competition for defense contracts have emerged. Rather, declines have varied greatly based on the military branch, the type of contract, and other factors, according to a study by the Center for Strategic and International Studies.
Historically, the rate of effective competition – when two or more qualified companies compete – has hovered around 50 percent of all contract obligations, CSIS fellow Greg Sanders said last week when CSIS hosted a discussion on its report, U.S. Department of Defense Contract Spending and the Industrial Base, 2000–2013.
“Levels of competition in DoD contracting did not change significantly under sequestration,” according to the report. “The share of contract obligations awarded without competition increased from 42 percent in 2012 to 43 percent in 2013, continuing a gradually increasing trend since 2010. The rate of effective competition rose from 48 percent in 2012 to 50 percent in 2013: competition with two offers and with three to four offers increased, while competition with five or more offers declined. Contract obligations awarded after competition with a single offer declined from 8 percent in 2012 to 7 percent in 2013, the lowest share in the 2000–2013 period.”
More specifically, the Army and Air Force saw an increase in their rate of effective competition from 2012 to 2013, whereas the Navy saw a decrease. Part of the explanation may be that the Army and Air Force had to cancel larger programs where there is typically less competition and saved smaller programs with more competition, whereas the Navy took the opposite approach, David Berteau, the project director and CSIS vice president and director of National Security Program on Industry and Resources, said.
Berteau said CSIS would take a more extensive look at the impact of sequestration on competition because the numbers were so intriguing. The breakdown of sequestration’s impact, and products and research and development contracts all look different by service, he said.
“There are different prescriptions for different parts of the problem, and if you treat it just as a universal problem across DoD, you’re going to come up with perhaps the wrong answer,” Berteau said.
One potential effect of this change in contract competition may be a shrinking market share controlled by the top five companies. In 2003, Lockheed Martin [LMT], Northrop Grumman [NOC], Raytheon [RTN], General Dynamics [GD] and Boeing [BA] won 34 percent of all DoD contract dollars, whereas in 2013 they earned 27 percent, Berteau said.
“I think that’s the result of a more competitive environment and a more competitive marketplace. I don’t think it’s a result of divestitures and mergers,” he said, while adding: “There’s a whole host of factors that contribute to this.”