Warren, Garamendi Urge DoD to Review Excessive Consolidation’s Risks to Defense Industrial Base
Rampant Defense Consolidation Risks Innovation, Supply Chains, and National Security
Washington D.C. – U.S. Senator Elizabeth Warren (D-Mass.), a member of the Senate Armed Services Committee, and U.S. Representative John Garamendi (D-Calif.), a member of the House Armed Services Committee, sent a letter to Secretary of Defense Lloyd J. Austin III, expressing concerns with the Department of Defense’s (DoD) insufficient review process for consolidation in the defense industrial base and the resulting impact on supply chains, innovation, and national security. The lawmakers are calling on DoD to conduct more thorough and transparent assessments of mergers and acquisitions (M&A) in the defense space and ensure the integrity of the defense industrial base.
“A strong and resilient industrial base is vital to enable the development, maintenance, and deployment of military assets, but the domestic supply chain is already struggling to meet demands and defense consolidation further exacerbates these concerning dynamics. The current major conflicts around the globe are exposing supply chain gaps and the Department must fulfill its obligation to ensure our defense industrial base remains resilient,” wrote the lawmakers.
Russia’s invasion of Ukraine and the competition posed by China on a global stage have stretched the defense industrial base to its limits. The National Defense Industrial Strategy found that the U.S. defense industrial base is falling behind and DoD needs to focus on “increasing our production capacity and strengthening our supply chains.” The report’s findings on the need for “capacity to produce… capabilities at speed and scale” and DoD’s current lack of a “comprehensive effort for mitigating supply chain risk” raise concerns about the industrial base’s ability to meet demand and ensure supply chain resilience.
The lawmakers then argued that excessive consolidation is one of the main factors weakening the industrial base’s supply chain and ability to meet demand. Consolidation in the defense sector often leaves only one or two suppliers that can meet DoD’s needs, making it harder or impossible for DoD to compare offers and ensure fair pricing. This lack of competition undermines the intention of DoD’s bidding process, reduces pressure to innovate, raises costs for taxpayers, creates barriers for new contractors to enter the market, and poses mission and national security risks.
While DoD has an assessment process for defense-related mergers and acquisitions, the Government Accountability Office has found deficiencies in DoD’s process, including that DoD does not “effectively align… its concerns… with the resources and robustness of its efforts to assess M&A risks.” Although around 400 defense M&A occur annually, DoD has only assessed an average of 40 for potential risks each year, leaving hundreds of consolidations unchecked. The lawmakers also noted that DoD’s failure to provide comprehensive oversight on M&A is more concerning given its approval of the merger between L3Harris Technologies and Aerojet Rocketdyne. The lawmakers previously raised concerns regarding the merger’s risks and lack of transparency.
“The assessments DoD conducts on M&A lack basic public transparency which might otherwise provide useful insight and accountability. DoD does not provide public comments or disclose its findings related to defense mergers. Without transparency the public cannot know DoD’s assessment of whether a merger might affect defense contracts, prices, supply chain gaps, innovation, and national security. This makes it more difficult to oversee and mitigate the risks of mergers, or to assess the sufficiency of DoD’s review process,” continued the lawmakers.
Given DoD’s repeated lack of oversight, accountability, and transparency, the lawmakers are calling on DoD to conduct more thorough and transparent assessments of M&A in the defense space. They are asking DoD to answer a set of questions about its processes and assessment on the health of the defense industrial base by March 11, 2024.
Senator Warren has led the fight to hold DoD accountable and transparent to ensure taxpayers are not being price gouged and the defense industrial base remains resilient:
- In July 2023, Senator Warren and colleagues sent a letter to the Department of Defense (DoD) urging the department to tighten up their merger review process, publicly disclose merger risks, and conduct a full review of the L3Harris Technologies and Aerojet Rocketdyne merger.
- In June 2023, Senators Warren and Mike Braun (R-Ind.), alongside Rep. Garamendi, reintroduced the bipartisan Stop Price Gouging the Military Act, which would close loopholes in current acquisition laws, tie financial incentives for contractors to performance, and provide DoD the information necessary to prevent future rip-offs.
- On May 25, 2023, Senators Warren, Sanders, Braun, Grassley, and Wyden sent a letter to DoD urging an investigation into contractor price gouging.
- In January 2023, Senator Warren sent a letter to the FTC urging them to oppose L3Harris Technologies merging with Aerojet Rocketdyne.
- On March 16, 2022, Senator Warren introduced the Prohibiting Anticompetitive Mergers Act to help stomp out rampant industry consolidation that allows companies to raise consumer prices and mistreat workers. The bill would ban the biggest, most anticompetitive mergers and give the Department of Justice and FTC the teeth to reject deals in the first instance without court orders and to break up harmful mergers.
- In August 2021, FTC Chair Lina Khan sent a letter to Senator Warren saying she shared her concerns about giant defense industry mergers.
- In July 2021, Senator Warren questioned the effectiveness of behavioral remedies to protect competition and prevent monopolistic behavior in the defense industry ahead of a proposed merger of Lockheed Martin and Aerojet Rocketdyne.
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