Senate Takes Up Stimulus: “Buy American” and Military Construction Watched Closely

February 5, 2009

Government Relations Update - Defense

The Economic Stimulus debate pressed on this week as the Senate kicked-off its consideration of H.R. 1, the American Reinvestment and Recovery Act of 2009, with senators on both sides of the aisle offering a flurry of amendments intended to alter both the size and the scope of the nearly $900 billion legislation – which includes a controversial "Buy American" provision that has caused great alarm within the defense industry.

Under H.R. 1, except under certain conditions, none of the funds appropriated under the bill may be directed towards a project for the "construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States." Exceptions to these conditions can only arise if the Federal department or agency of jurisdiction determines that applying this rule is "inconsistent with the public interest," or if the U.S. domestic material is unavailable in sufficient quantity or quality and if its use would increase the overall project by more than 25 percent.

According to Congressional Quarterly, U.S. defense contractors Lockheed Martin, Northrup Grumman, and United Technology Corp. responded by joining an extensive list of businesses and associations to send a letter to Senate leadership in opposition to the "Buy American" language, stating that such measures will "harm American workers and companies across the entire American economy, undermine U.S. global engagement, and result in mirror-image trade restrictions abroad that would put at risk huge amounts of American exports."

Additionally, the Aerospace Industries Association, the National Defense Industrial Association, and 13 other trade associations warned Congressional leaders in a January 22 letter that such a maneuver would violate existing U.S. free-trade agreements, and may provoke U.S. trading partners to implement similar legislation that will adversely impact American businesses.

During floor debate last night, Senator John McCain (R-AZ) offered an amendment that would ultimately strip out the "Buy American" language, but was rejected by a vote of 31-65. Instead, the Senate opted to unanimously pass an amendment offered by Senator Byron Dorgan (D-ND) stipulating that the "Buy American" conditions be "applied in a manner consistent with United States obligations under international agreements." Further attempts at modification are possible in the coming weeks.

Senate Democratic leadership is still aiming to complete the chamber’s work on the stimulus package by the end of the week, but numerous amendments are still pending and expected to receive votes. Appearing on NBC’s "Meet the Press" on Sunday, Senator Kay Bailey Hutchison (R-TX) expressed her position that H.R. 1 must include additional infrastructure spending – specifically citing military construction – opening up the possibility that an effort will also be made to increase the $5.6 billion available for DoD construction in the Senate version.

SIGIR Presents Findings

The Special Inspector General for Iraqi Reconstruction (SIGIR), Stuart Bowen, unveiled on Monday a nearly 500-page report to the newly-created Commission on Wartime Contracting in Iraq and Afghanistan (CWCIA), providing stringing criticism of the $50 billion U.S. reconstruction undertaking in Iraq.

Entitled "Hard Lessons: The Iraq Reconstruction Experience," Bowen’s report cites an overall lack of planning and accountability as prime contributors to the U.S.’s flawed reconstruction efforts, as it utilized hundreds of interviews with key U.S. and Iraqi officials that were involved in the Iraq reconstruction effort between 2002-2008 and thousands of documents amassed by the office of the SIGIR, in order to propose several steps the U.S. can take to avoid similar mistakes in the future.

During an interview with the Washington Post last week, Bowen said the Obama administration must devote increased attention to U.S. reconstruction efforts in Iraq and Afghanistan through the creation of a high-level group of Department of Defense, Department of State, and U.S. Agency for International Development officials, and could take further steps to simplify war-time contracting in Afghanistan by issuing a single and uniform Federal Acquisition Regulation (FAR) that applies to all federal agencies operating in the region.

Modeled after the "Truman Committee" that launched investigative hearings into government waste during World War II, the bipartisan CWCIA was created by Congress in 2007 in order to examine U.S. expenditures in Iraq and Afghanistan and to propose solutions to "systemic" problems that contribute to the abuse of taxpayer dollars.

Experts Analyze Future Defense Spending

Federal budget experts warned lawmakers on Wednesday that large-scale DoD weapons and military entitlement programs are impeding the Pentagon’s budget sustainability, providing further evidence that the annual DoD budget may take a significant hit in Fiscal Year 2010.

During testimony in front of the House Budget Committee, Stephen Daggett, a Congressional Research Service (CRS) defense budge specialist, and J. Michael Gilmore, assistant director of the Congressional Budget Office, suggested that DoD budget reform could be spearheaded by cutting back on authorized expansions to military personnel – the Army and Marine Corps are due to increase by 65,000 and 27,000 respectively - in order to mitigate significant budget strains caused by the DoD health care system and recently-spiked military benefits.

Additionally, the "systemic underestimation" of acquisition costs for major weapons systems was once again cited as a budget impediment, although Daggett warned that cuts to military modernization efforts must be viewed with caution.

Transition Update

According to Inside the Navy, Former Mississippi Governor and former Navy Officer Ray Mabus is a frontrunner to replace Secretary of the Navy Donald Winter.

Currently, no public statements have been issued by the White House in relation to the successor of Secretary Winter, who will remain in his post until March 13 if a nominee is not confirmed before then.

Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel