Garamendi, Warren Urge DoD to Review Excessive Consolidation’s Risks to Defense Industrial Base

Letter Text (PDF)

WASHINGTON, DC–Representative John Garamendi (D-CA08), the top Democrat on the House Armed Services Subcommittee on Readiness, and Senator Elizabeth Warren, a member of the Senate 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 the 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 global conflicts 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 the 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 the 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 the DoD’s needs, making it harder or impossible for the DoD to compare offers and ensure fair pricing. This lack of competition undermines the intention of the 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 the DoD has an assessment process for defense-related mergers and acquisitions, the Government Accountability Office has found deficiencies in the DoD’s process, including that the 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, the DoD has only assessed an average of 40 for potential risks each year, leaving hundreds of consolidations unchecked. The lawmakers also noted that the 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 the DoD’s repeated lack of oversight, accountability, and transparency, the lawmakers are calling on the DoD to conduct more thorough and transparent assessments of M&A in the defense space. They are asking the DoD to answer a set of questions about its processes and assessment on the health of the defense industrial base by March 11, 2024. 

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