March 18, 2024

Warren, Rounds Call on Pentagon to Address Excessive Defense Industry Consolidation that Jeopardizes National Security

GAO Report Required by Senators’ Law Found Inadequacies in Pentagon’s Tracking, Monitoring, and Understanding of Risks of Defense Industry Consolidation

Text of Letter (PDF)

Washington, D.C. – United States Senators Elizabeth Warren (D-Mass.) and Mike Rounds (R-S.D.), members of the Senate Armed Services Committee, sent a letter to Secretary of Defense Lloyd J. Austin III., urging the Department of Defense (DoD) to reform its approach to addressing mergers and acquisitions (M&A) in the defense industry to protect taxpayer funds and national security. The lawmakers’ letter comes after an October 2023 Government Accountability Office (GAO) report required by the lawmakers found inadequacies in DoD’s processes in tracking, monitoring, and fully understanding the risks that arise from M&A in the defense industry. 

“DoD plays an important role in reviewing proposed transactions that may adversely affect competition in the defense industry. The GAO found, however, that DoD’s processes are ‘not proactive’ and do not ‘analyze the full range of risks that defense-related M&A pose to the defense industrial base.’ These inadequacies can increase supply chain fragility and costs to the Department for products and services provided by an increasingly consolidated defense supply chain,” wrote the senators. 

Senators Warren and Rounds included a provision in the National Defense Authorization Act for fiscal year 2023 requiring GAO to study the impact of mergers and acquisitions on the defense industrial base and determine whether DoD’s current authorities and oversight processes are sufficient to prevent harmful mergers. GAO’s report highlighted multiple inadequacies of the Department to conduct proper M&A oversight, including DoD’s lack of criteria to prioritize M&A that pose the highest risks, insufficient resources to review transactions, lack of data on transactions in the defense space, and failure to monitor the impacts of the vast majority of transactions after they are completed.

The GAO report revealed that DoD policy “does not provide clear direction” and “does not currently have additional guidance to supplement its M&A policy and provide implementation instructions” for which transactions to prioritize when reviewing mergers and acquisitions. As a result, DoD primarily focuses on high-dollar value transactions that antitrust agencies notify it of. Consequently, DoD has “stopped scanning” for smaller transactions and “infrequently identifies M&A that may present a risk … outside of antitrust agencies’ request.”

The senators noted that inadequately focusing on M&A of smaller suppliers risks overlooking companies supplying critical products to DoD, producing unique items, or are the sole source for some products – resulting in a higher cost to taxpayers, raising barriers for companies that could become new vendors, and putting risks to national security. 

The senators called on DoD to: 1) update its M&A policy to specify which transactions require review; 2) shift existing resources to increase M&A review staffing levels; 3) proactively track and monitor transactions, including macro level trends in the defense industry; and 4) consistently engage in post-merger analysis. They are also requesting DoD answer a set of questions about its plans to improve its ability to address the risks of M&A in the defense industry. 

“In light of this report, our ongoing concerns with consolidation in the defense industry, and DoD’s own concerns with consolidation, we urge the Department to adequately resource its merger and acquisition office, conduct holistic analyses on risks to the defense industrial base, and provide information on how the agency intends to do so,” concluded the senators. 

Senator Warren has led the fight to hold DoD accountable and transparent to ensure taxpayers are not being price gouged and the defense industrial base remains resilient: 

  • In February 2024, Senator Warren and Representative John Garamendi (D-Calif.), sent a letter to Secretary Austin, expressing concerns with the DoD’s insufficient review process for consolidation in the defense industrial base and the resulting impact on supply chains, innovation, and national security. They called on DoD to conduct more thorough and transparent assessments of M&A in the defense space and ensure the integrity of the defense industrial base.
  • In July 2023, Senator Warren and colleagues sent a letter to DoD, urging the department to tighten up their merger review process, publicly disclose merger risks, and conduct a full review of the L3Harris Technologies and Aerojet Rocketdyne merger.
  • In June 2023, Senators Warren and Mike Braun (R-Ind.) and Representative Garamendi, reintroduced the bipartisan Stop Price Gouging the Military Act, which would close loopholes in current acquisition laws, tie financial incentives for contractors to performance, and provide DoD the information necessary to prevent future rip-offs.
  • In May 2023, Senators Warren, Bernie Sanders (I-Vt.), Braun, Chuck Grassley (R-Iowa), and Ron Wyden (D-Ore.) sent a letter to DoD urging an investigation into contractor price gouging.
  • In January 2023, Senator Warren sent a letter to the Federal Trade Commission (FTC), urging it to oppose L3Harris Technologies merging with Aerojet Rocketdyne.
  • In May 2022, Senators Warren and Rounds introduced a bipartisan joint resolution that would direct the Federal Trade Commission to report to Congress within one year on the extent of anti-competitive practices and violations of antitrust law in the beef-packing industry, including price-fixing, anti-competitive acquisitions, dominance of supply chains, and monopolization. 
  • In March 2022, Senator Warren introduced the Prohibiting Anticompetitive Mergers Act to help stomp out rampant industry consolidation that allows companies to raise consumer prices and mistreat workers. The bill would ban the biggest, most anticompetitive mergers and give the Department of Justice and FTC the teeth to reject deals in the first instance without court orders and to break up harmful mergers.
  • In August 2021, FTC Chair Lina Khan sent a letter to Senator Warren, expressing that she shared Senator Warren’s concerns about giant defense industry mergers.