Pentagon Says Contractor Mergers Harm National Security, Economy

The Pentagon, Arlington, Va.

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The Defense Department released a report on Tuesday that found mergers and consolidations among its contractors pose risks to the U.S. economy and national security.

Top Biden administration officials previewed the report before it was released. The report outlines measures to block mergers that go against the interests of the Department of Defense and reduce barriers to entry for new entrepreneurs. It also seeks to ensure that a company’s intellectual property protections are not anti-competitive.

Report calls on five sectors to develop sustainability plans supply chainsa major concern as the coronavirus pandemic disrupted world semiconductor supply chains and other property in a manner that created scarcity and inflation. The sectors are: foundry and forge, missiles and munitions, energy storage and batteries, strategic and critical materials and microelectronics.

The report suggests that the mergers have left national security beholden to private companies. There are only five aerospace and defense prime contractors, down from 51 in the 1990s. Just three sources account for 90% of US missiles.

Consolidation can hurt taxpayers because entrepreneurs no longer feel the competitive pressure to innovate to secure government business.

The report is part of a broader government effort under President Joe Biden to promote competition within the US economy. The ultimate goal of an executive order and competition council formed by Biden is to raise wages and lower prices.

Antitrust agencies are already taking steps to block mergers deemed harmful to the national interest. The Federal Trade Commission in January sued to stop Lockheed Martin Corp.’s $4.4 billion bid on Aerojet Rocketdyne Holdings, saying the result would be higher prices for missile components and less competition.

On Sunday, Lockheed Martin announced it was no longer pursuing the acquisition due to the actions of the FTC.

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