The Tenth Annual Gilbert A. Cuneo Lecture: The Role of Procurement Lawyers in the Era of Reduced Defense Spending

• Author: C. Slanley Dees
• Pages: 04

1. Introduction

It LS no secret that this decade will see great turmoil in government procurement, both in the government and in the private sector, as agencies and companies learn to cope with continually decreasing defense budgets. We also will feel the consequences of increasing industrial concentration, with fewer and fewer companies surviving in the government marketplace, and a concomitant threat to the nations' industrial and technology base Hard decisions must be made about what can or should be preserved in the interest of national security. The government will have to decide on haw, or whether, to help cushion the impact of the substantial dissolution ofthe defense industrial base that it has built.

Many of these issues are argued daily in the press, the Depart-ment of Defense (DOD),and Congess. They are an unavoidable reality of the changing face of national security, and they are not new to us Today, however, I would like to focus an what I think we as lawyers can and should be doing to help our respective clients cope with the changes that are coming In particular, how can government lawyers work to protect the increasingly limited resources available to the government without compounding the trauma of the dawnsizmg that 1s occurring?

*This anicle 19 B franicnpt of a lecture delirered by C Sfenley Dees to mem-bers af the Staff and Facult? and students attending rhe 1883 Government Contract Lau Syrnponvm on Januaq 11. 1883. 81 The Judge AdYoCBfe General's School Char Iottesvllle PlrEmla. The Cuneo Lecture 11 named m memom of Gdben A Cuneo. who was an exren& ~~rnmentaforand premier litigator m rhi field of government con-tract Is- Mr Cuneo m'aduafed from Harvard Law School m 1837 and entered the United Slate3 Amy m 1942 He served ~j B government c~nfractlaw ~nst~yctoron the

faculli of The Judge Advocate Generala School. then located at the Unwersn) of ~1~ch~ganLa~~SSchaol.lrom

184410 1846 Forthenentwelve years Mr. Cuneowanan sdminiStrafive law judge with the Wkr Depsnmenf Board of Contract Appeals and 11% ~uecerror, the Armed Service8 Board of Contract Appeals He entered the private practice of law m 1858 m UBjhingfon. D C DUMB the ne- twenty years. Mr Cunea lectured and higated extensively in all areal of garemment eantraet lax, and w ~ j unanmously recomized an the dean of the government contract bar

**Partner, McKenna & Cuneo. Lecturer, Univei~11y

of VlrCrua School af Law,

Honorary Faculty The Judge Advocate General's School. United States Army Thh article WBJ prepared rlth Ahson L. Doyle, an associate at McKenna 81 Cunea Marga ret Rhodes also an assoc~~te,prmlded research an~~~mnce.

200 MILITMY LAW REVIEW [Vol. 141

11. The Reality of Downsizing

In fiscal year 1988, the total DOD acquisition budget was 581.69 billion. The fiscal year 1993 budget contained only $61 776 billion for procurement, a reduction of over thirty-seven percent. The Army acquisition budget has been reduced by over fifty percent.

These budget reductions already have had a substantial, and occasionally devastating, impact on the defense industry Hundreds of defense contractors are fighting to win the fewer contracts that are being awarded and to became pan of those programs that are expected to survive despite the cuts.

Even greater reductions are expected in the near future. The Secretary of Defense, former Representative Les Aspin. made it clear during the deliberations on the fiscal year 1993 defense budget that he believes greater reductions were possible than had been proposed by President Bush through fiscal year 1997. President Clip ton made it clear prior to the election that he also believed greater reductions were possible. Although Secretary Aspin has placed no formal proposals on the table, it reasonably can be expected that he will seek to implement some of his proposals dunng fiscal year 1993 and thereafter. Thus, there 1s no avoiding the reality of continued downsizing and the future of a greatly reduced body of government contractors on which the government can rely.

One consequence to be expected is the temptation m both the government and the private sector to pursue disputes more doggedly. Yow, more than ever, a lost contract can mean the difference between survival and dissolution for many contractors Although there are contractors that may engage affirmatively ~n the dawnsizmg (such as General Dynamics, with Its decision to sell off its assetS),L ingrained competitiveness, lost value in the market. and even antitrust laws will be barriers to easy transition. This trend 1s

already expressing itself m the disputes that appear in the various bid protest forums avalabie to government contractors The number of disputes has grown as the defense budgets have shrunk.

The problem of downsizing has received considerable attention from industry and Congress in recent years, and many proposa1s have been and are being made to ease this process What 1 would like to do today is discuss the role of the procurement lawyer during these difficult times.

1~alDynamzes'SellznySrrotrgy,

FOWLYE, Jan 11 1883, at 66

111. The Impact of Downsizing

Early this year, in his analysis of the then-proposed DOD five-year defense plan (FYDP), Secretaly Aspin observed that, by the end of the current FYDP, "we will be out of business entirely m several defense industnes, and imminently out of business in several others." Mare specifically, he anticipated that, for example, the total number of airframe programs in production would fall from the 1982 level of twenty-five to amteen m 1997 and ultimately perhaps to six.Even more devastating were his predictions that the present five gunslcannans programs would fall to zero in the same time frame, hull programs would fall from nme to one, strategic misalei from Seven to two, and tactical missiles from twenty to eight.2 Furthermore, the level at which survmmg programs enter production is expected to be much lower, and there will be longer intervals between Pentagon procurement of new systems

1. Downsizing and Its Zrnpact on the Industrial Bose

   Defense companies are facmg serious long-term adjustments The Congressional Office of Technology Assessment has found that defense spending reductions u e cutting deeply into programs that defense companies expected to sustain them, threatening their stability or even eri~tence.~

   However, little has been done to address or ameliorate these adjustments.

   The Bush Administration made two major mistakes, diametrically opposed in philosophy, regarding the industrial base. First, because of an extreme laissez-faire attitude--an unwillingness to adopt any formal "industrial policy"-the government has not established much in the way of a rational process far downsizing. Second, the Administration (with some help from Congress) eontmued to maintain and increase the over-regulation that is driving away participation by commercial entelprises as well as any cantractor that can move to commercial programs.

   Specifically, the Administration has not been sufficiently cancerned with four needs:

   The need to encourage advanced, dual use techThe need to maintain production capacities and

   nology research and development;

   production skills in certain unique areas;

   The need to retrain idled defense workers, with the United States bearing a substantial portion of the cost, and

   * The need to push actively for an integration between the commercial and the militaq technology and industrial bases, by reducing the burdens of military clauses and specifications wherever possible

   It 1s estimated that well over half the number of defense suppliers have disappeared in the last decade, either moving to nan-defense markets or out of business ait~gether.~

   This trend continued under the Bush Admimsrration, which made It quite clear that 11 would not intervene an behalf of even some of the largest corpora tions threatened by the cancellation of major programs Observers have labelled the government philosophy a policy of "lndustrial Dar-w~msm," with a reliance on the survival of the fittest that will lead to unpredictable and less-than-ideal results There appeared to be little inchnation within previous administrations to manage effectively or preserve the defense industrial base

   Congress has taken some small steps to cushion the Impact. authorizing funds to support conversion of the industrial base Although several ideas were proposed in the fiscal year 1003 DOD Authorization Act, only a limited program far retraining of displaced defense industry employees and direction to DOD to develop a plan for defense conversion ultimately has sunwed the legdative process 6

   President Clinton has recognized these concerns, and has expressed his intention to preserve key elements of the industrial base by identifying the core capabilities that are needed in the post-Cold war security environment for presemation We hare yet to see %,hat this wiii mean.

2. ThelVew Compstiti~~Enzzron?nent 1. Cornpetitton uith Federal Facilities.-Further adding to the burden of competing for drastically reduced procurement dollars will be increased competition from federal facilities. such as research laboratories, arsenals. and depots. Already we see depots with substantial unused capacity trying to retain more maintenance activity and branch out into manufacturing activity to sustain their

   'Douglar- P Belghle, Wma Contractors-nii Zen Spotted mLi4 24 IAT'L Coh~

   Maw J 23(L881)

   'Uatmnal Defense Aurhonzatmn Act for hseal Year 1983, Pub L Xo 101-484 $4465 lOfiSfat 2315. 2742(18821

   own employment levels. There has been caneideration of the possibility of buiidmg a government-owned plant to assemble the F-22 Advanced Tactical Fighter when it enters production. Procurement lawyen will be faced with more and more complicated questions on the subject of contracting out-questions such as, can a contract be terminated solely to aiiow an underutiiized government faciiity to take over the work?

   Continuing to contract out spare...