Discount purchasing power arguments—they’re unverified propaganda to increase defense spending

The defense industry has continually cited inflation to justify more military spending. One group of defense contractors, the National Defense Industrial Association, has justified such requests for inflation relief by claiming the Department of Defense will lose more than $110 billion in buying power from fiscal year 2021 to fiscal year 2023.

But the Pentagon has yet to verify that claim, much less publicly advocate for sweeping adjustments to Pentagon contracts because of inflation.

On the contrary, Pentagon Defense Pricing and Contracting Principal Director John Tenaglia has instructed contracting officers to limit such adjustments. While industry backed a legislative proposal to increase prices for what are known as firm fixed price (FFP) contracts, Tenaglia issued official guidance in both May and September pointing out that, according to the law, companies with FFP contracts must “bear the risk of cost increases, including those due to inflation.” He clarified that there is no authority to change the price of an existing FFP contract, unless that contract contains a clause authorizing a price adjustment resulting from an economic factor like unexpected inflation.

There is, however, another pathway to ease the burden on companies at risk of going under — one that preserves guardrails in FFP contracts to prevent companies (making record profits) from abusing contract funding already vulnerable to waste. An earlier Congress established that companies could request contractual relief under certain circumstances. Public Law 85-804 empowers agencies, including the Department of Defense (DOD), to exercise and delegate the authority to modify contracts so long as such action would “facilitate the national defense.” But contractors would have to prove significant financial burden to show that contract adjustments actually strengthen our national defense.

“The simple truth is that the Senate’s move to increase military contract funding is unnecessary, as well as contradictory to Pentagon guidance on managing inflation.”