Loopholes for Military Contractors Are Costing You Money

We place a huge amount of trust in military contractors to provide high-quality goods and services and to provide them at a fair price. As the federal government’s largest revenue source, American taxpayers hold the largest stake in ensuring that government money is being well-spent, especially in defense spaces. What can we do, then, when military contractors overcharge the Department of Defense (DOD), and taxpayers end up footing the bill?

This issue might seem complicated, but the solutions are simple. Once we understand the language surrounding these loopholes, we can put public pressure on lawmakers to strengthen the law and protect taxpayer dollars. Here’s everything you need to know about the issue to persuade lawmakers to fix it. 

The Truth in Negotiations Act (TINA)

In 1962, Congress tried to hold military contractors accountable to taxpayers with the Truth in Negotiations Act (TINA). Simply stated, this law requires contractors hired by the DOD to justify the prices they charge the government. Unfortunately, the defense industry has a lot of power in Washington, so some exceptions have been added to TINA over the years. And because there are only a few military contractors receiving the bulk of DOD contracts, the government doesn’t have many options when contractors take advantage of these exceptions to raise prices. 

There are two major loopholes that help contractors overcharge the government (and taxpayers):

1. Currently, of the contracts that require price justification, military contractors only need to explain the prices they’re charging the DOD if the contract exceeds $2 million. This means DOD officials have no way of finding out how fair the price is for deals that fall below $2 million — by far the majority of deals, according to a 2022 report from the Government Accountability Office.
2. Military contractors don’t have to justify their prices at all for items that are labelled as “commercial,” or items that can be bought on the open market and aren’t specific to military or defense spaces. The idea is that because these items are widely available, DOD officials would have access to plenty of data about these items, which would help ensure fair negotiations. However, if a military contractor is the only one providing a certain good or service, then that contract is not competitive, meaning DOD officials can’t compare prices and contractors can set prices as they please. 

Closing the Loopholes

Things like disclosure thresholds and commercial items definitions seem complicated, which helps shield military contractors from accountability. But the solutions to these problems are not as convoluted as they’d like us to believe — and the public really does have the power to effect change. 

A few simple changes to the law would go a long way. A revision of the commercial items definition and a decrease in the certified data disclosure threshold are two meaningful updates to TINA legislation that members of Congress could support to save the Pentagon — and taxpayers — more money. 

Instead of leaving these conversations up to Washington insiders, you can get involved by sharing our fact sheet with your representatives in Congress. Tell them to close these loopholes now by lowering the data disclosure threshold and changing the definition of commercial item.