Inflation Relief for Defense Industry a “Terrible Setback for Transparent Policymaking”

by Vins
Published: Updated:

In a time of unprecedented economic hardship, lawmakers tacked a last-minute provision on the 2023 National Defense Authorization Act (NDAA) to shield the nation’s multi-billion dollar defense industry from the effects of inflation. As Julia Gledhill reported for Responsible Statecraft in March 2023, the modification to the annual defense policy bill “exploit[ed] inflation as a justification for more military spending.”

In addition to the NDAA authorizing $45 billion more for defense spending than President Biden had originally requested, the provision that Gledhill’s reporting highlighted allows for what she described as “potential sweeping price increases to Pentagon contracts,” based on inflation. The provision in Section 822 of the NDAA permits contract modifications in cases where costs have increased “due solely to economic inflation.” However, as Gledhill reported, “there are no requirements for military contractors to prove their costs increased because of inflation alone.”

The inflation bailout for the defense industry was crafted “behind closed doors” and added to the bill’s text by “a few House and Senate negotiators… without broader congressional input,” Gledhill reported: “None of the earlier versions of the defense bill included the provision.” Her report characterized the addition of the provision as “a terrible setback for transparent policymaking.”

After Congress returned from its 2022 summer recess, the defense industry launched a “lobbying blitz” to seek inflation relief for contractors. The Senate rejected this bid, “partly because of pushback from the Department of Defense and Senator Elizabeth Warren,” Gledhill reported. When defense contractors win Pentagon contracts, they assume the risk of cost growth, Gledhill explained; but that did not stop defense lobbyists from “pushing Congress for an inflation bailout without any evidence showing they really need it.”

Not only was this amendment unwarranted on its merit, existing law already provided the inflation relief the amendment claims to address. But, unlike the NDAA provision, existing law specifically requires contractors to prove their financial burden to be rewarded with contract modification. By contrast, the NDAA provision to increase Pentagon contract prices without evidence of inflation amounts to what Gledhill described as “profit insurance.”

Gledhill’s story was republished by Truthout. In December 2022, Todd R. Overman of Reuters provided  a comprehensive overview of the defense industry’s efforts to secure inflation relief, noting that “Section 822 is a welcome development for the DOD contracting community and for U.S. national security more broadly, but its potential effectiveness is not yet certain.” Overall, however, corporate news media have not addressed Section 822, leaving the public relatively unaware of its implications for increased defense spending.

Sources:

Julia Gledhill, “Lawmakers Quietly Gave Weapons Firms Bailout for Unproven Inflation Burden,” Responsible Statecraft, March 3, 2023; republished as “Lawmakers Quietly Gave Weapons Firms a Bailout for So-Called Inflation Relief,” Truthout, March 3, 2023.

Julia Gledhill, “Inflation Bailout or Baloney? Senate Increases Military Contract Funding, to Industry’s Delight,” Project on Government Oversight, October 27, 2022.

Student Researcher: Zach McNanna (North Central College)

Faculty Evaluator: Steve Macek (North Central College)