Contractor Push for Inflation Increases Could Enable Profiteering

As Senator Elizabeth Warren has noted in two recent letters to Pentagon and arms industry officials, weapons contractors are working overtime to translate concerns about inflation in the defense sector into an opportunity to reap windfall profits that will do little to increase defense capabilities and much to enrich them and their shareholders.

There are two issues of immediate concern: the Pentagon’s consideration of industry proposals to renegotiate existing contracts upward in the name of fighting inflation, and the industry’s proposal to add $42 billion to the Fiscal Year 2023 budget for the same reason. Neither of these proposals have been backed up with hard data. Instead, the industry and the Pentagon are seeking across the board increases that appear to be far beyond what would be needed to deal with specific instances of inflation. This money grab must be stopped.

As Warren has pointed out in a letter to Under Secretary of Defense for Acquisition and Sustainment Bill Laplante, she is concerned about “Defense (DoD) plans to implement an industry-written proposal to increase defense contract prices without sufficient safeguards in place to prevent industry profiteering and ensure that the increased costs are appropriate and necessary.”

Warren’s concerns are well-founded. As her office has determined, even as the Pentagon increased cash flow to major contractors tied to supply chain concerns sparked by the impacts of the Covid pandemic, those same companies turned around and made billions of dollars worth of buybacks of their own stock, inflating share values while doing nothing to address production delays or cost increases.

Read the full piece in Forbes.