When Capitalism Clashes With Our Defense

The recent news that the U.S. Army has been caught out on its procurement procedures is as much a negative by-product of our capitalistic system as it is an internal mess for the Department of Defense.

Finally, the Army Chiefs have begun a broad review of procedures used to supply security forces in Afghanistan and Iraq with foreign arms. This has come about because Congress got tough via the Gansler Commission last October in publically criticizing our military procedures in managing many of DOD’s weapons procurements, especially at the lower levels. The latest abuse concerns the main private supplier of ammunition to Afghanistan, a company called AEY, Inc. of Miami Beach. Hardly a major corporation, AEY operates from a hole in the wall in an unmarked office, incorporated only in 1999 and is now mostly led by the 22 year old son of the founder who has dubious credentials at best. Nevertheless, the “company” was awarded a contract that had a potential value of close to $300 million to be the primary supplier of ammunition for the Afghan security forces in their fight against the terrorist organizations Al Qaeda and the Taliban.

Essentially, what happened is that the Army locked in the lowest bidder for the right to ship bullets to Afghanistan’s freedom fighters. In order to profit from the contract, AEY needed to find the cheapest ammo it could…and it did. According to reports from the New York Times last month, AEY shipped to Afghanistan “tens of millions” of ancient Chinese cartridges that they had simply re-packaged in cardboard containers. Indeed, much of this ammo was not only old but it was material that both NATO and our State Department had already determined to be so obsolete that they have apparently spent millions of dollars in an effort to destroy it all.


–the AEY ammo was never tested for reliability as it should have been under long established military standards.

–the young son in charge of the AEY operation was under a felony charge of possession of a forged driver’s license when the contract was awarded.

–he then conducted business in Cyprus and Albania, both of which countries have had serious scandals in their arms-export agencies. Although there is no evidence that AEY bought any ammo directly from China, there is ample evidence to show that they shipped over 125 million rounds from Albania to Afghanistan and these rounds were Chinese made but stored in Albanian depots from as far back as 1960.

While a $300 Million contract in a multi-trillion dollar war is not all that much, the case is illustrative of not only of an encrusted bureaucracy, bloated, redundant, and often blind, but of the problems a capitalistic society in general must surely have in buying goods and services for the defense of the nation.

It seems clear that we cannot afford to be awarding contracts simply to the lowest bidder as it also must be clear that concerns that everything for our defense be made by American labor is also a limiting and potentially dangerous fallacy. The plethora of rules and regulations regarding who can and cannot bid on contracts is also extremely confusing.  The fact that a company is disadvantaged or minority-owned, is a small business or is in this state or that all factor into decisions regarding our national defense and frankly they have no business at all being a part of the equation.

It is then ironic but seemingly quite true that while we build up and manage our defenses ultimately to keep the country free, it is that very freedom in the area of contracting to build our defense that often gets us into serious trouble. While obviously there must be some sense of fairness in contract awards, when it comes to America’s defense, can we really afford to put competition first and safety second?

While there are no easy answers in the today’s layer after layer of governmental controls, it is obvious that the checks and balances can be circumvented and often just plain don’t work. In defense contracting, the system does appear to be “broke” and it does need fixing. One idea would be to have an “ultimate” review board for each and every contract signed so that at least one final set of eyes would be able to quickly sense the relative rightness of the individual deal. Given the competition and turf wars amongst the individual services, good luck with that.  However a few more very public incidents like this Afghan munitions mess and the military will be scrambling for any cover it can find. Out of such troubles arise opportunities for change. While we fight for freedom against vices around the world, freedom in contracting to build up our military may be no virtue at all.