Deregulating Defense Acquisition

Abstract

The Department of Defense (DOD) buys more merchandise than all the rest of the public sector of the United States put together. More than 30,000 firms provision the DOD; 15,000 are prime contractors. These firms employ hundreds of thousands of production workers, engineers, and scientists and tens of thousands of accountants, lawyers, and lobbyists as well altogether over three million employees. ' The acquisition process also enlists the efforts of legions of DOD personnel, both uniformed and civilian (over 580 thousand according to the expansive DOD definition of acquisition,2 including 26,000 auditors), as well as prodigious numbers of legislators and their helpers. I estimate that the DOD's inventory of arms and equipment has a net replacement value of about $.7 trillion, equal to one-fifth of the nation's business investment in plant and equipment. Given that the average half-life of the DOD's equipment is approximately ten years, this means that the DOD must buy $80 billion worth of arms and equipment each year just to stay even. Sustaining a technological edge costs $40 billion for military research and development, and operating and maintaining the inventory at current readiness levels costs $85 billion more. In 1990 the DOD purchased about $220 billion worth of goods and services from a variety of outside suppliers, which put it somewhat ahead of the game.