While Defense Secretary Caspar W. Weinberger resists cuts in spending, the Pentagon has wasted millions of dollars by increasing the number of weapons contracts it awards without negotiating the price, according to congressional investigators.
The proliferation of these "unpriced orders" -- the current backlog amounts to $28 billion -- suggests that the Defense Department is "so awash with procurement funds that it must resort to wasteful and irresponsible procurement practices," a staff report by the House Energy and Commerce oversight and investigations subcommittee said.
The Navy -- where a $11.5 billion backlog is referred to as the "swamp" -- has tripled its unpriced orders since 1982, typifying a Pentagon-wide practice that is "out of control," the report said.
Rep. John D. Dingell (D-Mich.), subcommittee chairman, said in a Dec. 19 letter to Weinberger that "the extensive use of unpriced orders puts the government in a virtually no-win situation and is nothing short of a license to steal."
A Pentagon spokesman said Weinberger had no comment because he has not received the letter or report.
Defense officials said unpriced orders are a way of speeding the production of urgently needed items. The contractor begins work immediately, avoiding lengthy price negotiations. The Pentagon sets a ceiling price, generally much higher than expected costs, and fixes a final price later.
Normally, defense contracts are awarded after an extended negotiating process involving price submissions by weapons makers, Pentagon audits and approvals.
House investigators said that while unpriced orders are less efficient than conventional methods, they are a "necessary evil" to assure combat readiness. At the same time, they said, the Pentagon has other "nonlegitimate" reasons for the practice.
One of these is known as pushing procurement money "out the door," according to the report. Military services obligate funds to high ceiling prices of nonnegotiated contracts to make sure acquisition budgets are exhausted within the fiscal year for which they were appropriated, the study said.
Investigators released a Navy document to illustrate the alleged abuse. In the Oct. 18 directive, Deputy Commander R.V. Johnson of the Naval Air Systems Command said ceiling price orders should be placed only for urgently needed items.
His "criteria for such urgency" included funds appropriated for spares, repair parts, support equipment and retrofit kits that would be "in danger of being lost due to imminent expiration of funding obligation date."
The investigators said they also obtained documents from a July 1985 Pentagon meeting in which officials discussed how to obligate more than $20 billion in acquisition funds before the end of the fiscal year for which they were appropriated.
Dingell, citing the budgetary burdens of the new Gramm-Rudman-Hollings deficit-reduction law, urged Weinberger to "consider returning funds that cannot be spent wisely. We can no longer afford the luxury of wasteful procurement practices. It is clear that the excess of money at the Pentagon is the root of the problem."
He asked Weinberger, who has said that Gramm-Rudman-Hollings could erode U.S. military capability, to report to the subcommittee by Jan. 8 on the spending policy.
According to the report, unpriced orders result in excessive profits for defense contractors. Since the Pentagon agrees to cover all costs before the final price is set, it assumes the cost uncertainties normally borne by the contractor. When the final price is negotiated, however, the Pentagon "too often" awards the contractor profits as if it assumed the risk, the report said.
In a $70 million unpriced order for F18 aircraft parts, the Navy gave McDonnell Douglas Corp. $3 million in profit for risk assumption even though the contractor had completed more than 80 percent of the work while the government was assuming the risk, the report said.
"This apparently generous compensation for minimal risk more than doubled the profit paid to the contractor," investigators said.
Navy auditors, the subcommittee staff said, plan to issue a separate study showing that almost half of the unpriced orders they reviewed were negotiated after at least 80 percent of the work had been completed. The auditors reportedly found that about $700 million in contracting dollars are tied up unnecessarily in ceiling prices.
Navy officials, meanwhile, have ordered a 30 percent reduction in the dollar value and 20 percent reduction in the number of unpriced orders in this fiscal year, the report said.