The US Department of Defense (DoD) has a problem.  Given the global supply chain, how can the Pentagon protect its sensitive trade secrets and technology from slipping into foreign hands? How can the Pentagon also ensure that key components to weapons and other national security systems are not compromised?  Given the reliance of our nation’s largest prime government contractors on offshore partners within the global supply chain, ensuring technology protection and supply chain continuity is a complex challenge.

To address these concerns, a relatively obscure provision in the 2011 Defense Authorization Act (S. 3454) known as Section 815 has been proposed.  To better manage supply chain security risks, Section 815 would empower government bureaucrats to subjectively cut suppliers out of the DoD supply chain if they were deemed a risk.  True, some legitimate security risks would be eliminated, but at what cost to small business suppliers competing in an open market, large prime contractors trying to reduce costs and operate efficient supply chains, government agencies dependent on these contractors, and ultimately the US taxpayer that pays for all of the above.

But there is more to worry about than just the potential cost.  Typically, bidding disputes are subject to review by the Government Accountability Office.  However, perhaps the most troubling aspect of Section 815 is the lack of transparency of decisions to disqualify bidders and also a potential prohibition of bid protests, providing little to no accountability or remedy to contest wrongful determinations.  The government claims it cannot provide transparency without revealing classified national security information, which is a fair point.

An article in The Wall Street Journal reported that Section 815 will allow government agencies to set qualification requirements for contractors, consider supply-chain risks along with other factors such as cost and qualifications, and broadly allow government officials to exclude suppliers as they believe necessary.

Section 815 is not a small measure and will affect many tens of billions of dollars in government spending.  All of the major prime government contractors rely on international suppliers who may, under this provision, become excluded from the supply chain.  Scott Amey makes several good points on this topic in his blog post on Project On Government Oversight (POGO).

Although Section 815 powers appear overreaching in their current form, there does seem to be a fundamental need for additional risk management.  Overall globalization of the supply chain has many positive aspects including increased competition, efficiency, and cost reduction.  However, such globalization also allows potential adversaries expanded opportunity and access to critical national security and weapons systems. 

This “national security vs. open-market competition” issue begs an analogy with the  “airport security vs. privacy concerns” debate that is occurring now as well.  The world is changing rapidly and security is a complex, ever-changing issue.  How does America protect its citizens while maintaining core freedom and capitalism values?