The U.S. Defense Department needs to sign long-term deals with manufacturers of the missiles and bombs heavily needed by U.S. forces and allies, the Pentagon’s top weapons buyer said Wednesday.
Multiyear contracts could persuade weapons makers to improve and expand their factories, said Bill LaPlante, defense undersecretary for acquisition and sustainment.
“What really matters is contracts,” LaPlante said at a conference sponsored by Defense News. “We buy munitions and many of these things in a single year.”
But the Pentagon does buy some of its most expensive weapons—warships and fighter jets—in bulk across several years. These long-term contracts typically save 5 to 15 percent over annual contracts, according to the Congressional Research Service.
“We do multi-year contracts for ships [and] we do it for airplanes, [but] we don’t do it for these other munitions,” LaPlante said. “We need to do it because that’ll stabilize the supply chain. That’ll send a signal to industry to say: ‘They’re in it for the long haul and we can make the commitment’.”
The U.S. has pledged billions of dollars’ worth of weapons to the Ukrainian military, which has been trying to fend off a Russian invasion since February. The Pentagon has pledged to resupply its own stockpiles and those of its allies, but many of those deals haven’t materialized yet.
The Pentagon needs to “shift gears” to meet the new demand to resupply weapons being donated to Ukraine and prepare for possible conflicts with China, but “the clutch isn’t engaged yet,” Lockheed Martin CEO Jim Taclet said during a July earnings call.
“The ‘clutch engaged’ means there are contracts in place,” Taiclet said.
LaPlante said he’s spoken to Taiclet and other CEOs in the past month about what he sees in weapon demands in Ukraine and elsewhere around the globe “so that they can have a sight picture so they can start making their investments.” Congress ultimately has the final say about whether the Pentagon can sign multi-year contracts with companies, he said.
“We in the department and with the Hill, need to give a better plan” to industry, LaPlante said. “This is what I think they’re asking for and I agree with it.”
As it’s unclear how long the war in Ukraine will last, U.S. military leaders are trying to determine the types of weapons and equipment that will be needed in the coming months. Navy Undersecretary Erik Raven said the Office of the Secretary of Defense is working with the military services to better understand “what might be needed 6, 12, 18 months down the road in terms of these capabilities.”
“We’re really focused on providing the expertise that we have in the maritime sectors to getting ahead of next year’s problem, and making sure that we can deliver capability on a continuous basis,” Raven said Wednesday during the Defense News conference.
LaPlante said he expects the Pentagon to soon unveil guidance that allows contracting officers “to try to get more flexibility for contracting officers to deal with the inevitable supply chain effects of inflation.”
He said he is most concerned about small suppliers that are locked into fixed-price deals with larger companies and are unable to eat the higher costs of doing business.
“Well, if you’re in an [firm-fixed-price] contract that was signed in 2020, it’s got to suck when it’s 2022 with an inflation rate of 10 to 11%,” LaPlante said. “That’s what I’m worried about.”
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