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Bill encourages Pentagon to use online sellers such as Amazon for ordinary goods

Key Points
  • A defense policy bill includes a provision that would allow the Pentagon to buy off-the-shelf goods from online merchants such as Amazon to save money.
  • The bill, part of a wide-ranging measure that also authorizes $700 billion in national defense spending, could be voted on Tuesday by the House.
  • The same bill also authorizes the military to buy more F-35 stealth fighters and F/A-18 fighters than was requested by the White House.
An F-35A conducts testing with a short-range air-to-missle flying over the skies of California.
Source: US Air Force

Amazon may not sell real tanks or fighter jets, but the Pentagon could soon be looking to buy other items in bulk from the e-commerce giant, according to a pending bill.

The bill, formally known as the 2018 National Defense Authorization Act, is part of an annual measure that sets defense policy and authorizes spending on particular defense programs. The final version of the NDAA was announced last week in a House-Senate conference report, and the House is set to vote as early as Tuesday on the legislation.

"The fiscal year 2018 NDAA conference report has something for everyone," Jefferies analyst Sheila Kahyaoglu said in a research note.

She said Lockheed Martin looks like "the biggest winner," noting that funding levels for the F-35 stealth fighter are more than $2 billion above the administration's request. There's a total of 90 F-35 fighters that the NDAA conference report provides for, up from the 70 aircraft requested by the White House.

But it's the acquisition provision in the NDAA that allows the Department of Defense to buy "commercially available off-the-shelf items" from online marketplaces that is especially interesting and could be far reaching since the Pentagon buys not just high-priced weapon systems but ordinary goods such as office supplies.

"The Pentagon is one of the largest organizations in the world," said Todd Harrison, a senior fellow at the Center for Strategic and International Studies, a Washington-based think tank. "If you look at it, they employ like 2.2 million people full time and another 800,000 part time. It's a big organization with a lot of bases and office space, so there's there's a lot of these mundane purchases of pencils and whatever."

The reform is designed to "improve the way the Pentagon buys commercial off-the-shelf goods, ranging from bottled water to treadmills or even forklifts," according to the NDAA summary report prepared by the House Armed Services Committee. It said the DoD has two options today for purchases, through the contracting process or from the General Services Administration.

Under the change, the government would be allowed "to use online commercial sites such as Amazon, Grainger, Staples, or Walmart just as businesses do," the NDAA summary stated. "These portals function like mini-marketplaces, ensuring that the buyer gets the best price without a lot of red tape."

"It could be very significant over a number of years," said Roman Schweizer, a defense analyst at Cowen. "Just initially there's going to be sort of a learning process. Also, the government is going to have to set up the rules of the road and set up some thresholds and procedures on how to do it."

The federal government's independent GSA would have a prominent role in helping to create the ground rules for the DoD's program to buy from online marketplaces.

"I'm curious to see how this will actually work in practice," said Dan Grazier, a defense industry expert at the Project On Government Oversight, a Washington watchdog group. "There's been all kinds of issues over the years with people abusing the government charge cards, which is exactly how this system will be used."

The NDAA also contains other acquisition reform provisions, including to give the Pentagon better oversight and understanding of their service contracts, which includes everything from base maintenance such as painting buildings, mowing laws and other support areas. The NDAA is more of a policy bill for national defense priorities and programs but not an appropriations bill.

Slightly more than half of the Pentagon's annual contract obligations are for what's categorized as contracted services, which includes facility, construction, R&D, transportation, logistics and other services.

Meantime, besides Lockheed's F-35 being a beneficiary of the NDAA there's good news in the legislation for Boeing. The bill authorizes the procurement of more of the company's F/A-18 fighters, V-22 Osprey tilt-rotor aircraft and Chinook CH-47 helicopters than the administration had asked for in its May budget.

Kahyaoglu also said the NDAA includes "broad support across ships." Specifically, the bill authorizes just over $26 billion for shipbuilding to fund 14 ships, some $6.3 billion above the president's request or 5 more battle force ships.

The Senate could vote on the NDAA before Thanksgiving holiday but no vote is imminent, according to a congressional source. Once the conference version is approved by both chambers it can go to the president for consideration.

Overall, the NDAA includes $692 billion in defense spending, which includes around $66 billion for the so-called Overseas Contingency Operations warfighting fund and a base budget of $626 billion, as well as $8 billion for other defense activities. But the base discretionary spending amount exceeds the $549 billion allowed under the current budget caps.

"Not only is it well in excess of the budget caps, it's in excess of what the president submitted in his budget request," said CSIS's Harrison.

Getting rid of the budget caps will require at least 60 votes in the GOP-controlled Senate, or support of every Republican and eight Democratic senators.

Another hurdle to still overcome is getting Congress to agree on a appropriations bill to fund the fiscal 2018 defense spending. There's a chance the appropriations could end up at a lower level than the NDAA's total of $700 billion.

"You can authorize whatever level of funding you want in the NDAA," said Harrison. "You still have to wait on appropriations to come, and that can end up at a very different level of funding. And they are not making any progress on the appropriations right now."

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