Defense Contractors

Civilian firms that build and supply military equipment and provide services to a country's armed forces. Although many defense contractors produce weapons, not all arms manufacturers are defense contractors. For example, many U.S. companies produce firearms, but only a few sell their products to the military. The term defense contractor denotes a firm whose goods and/or services are used in the context of national security.

The Contracting Process

The business of contracting with companies to equip and service the armed forces is part of the U.S. budget process. Each year, the U.S. Department of Defense (DoD) submits an estimate of its physical, logistical, and administrative expenses and also submits a detailed budget to Congress that outlines these costs. The budget is a request for funds to purchase vehicles, weapons, ordnance, communications gear, and other assorted combat equipment, as well as all of the supplies necessary to keep the armed forces functioning. Congress reviews the budget and, typically after negotiation between legislators who want to spend more on defense and those who want to cut defense spending, approves a final defense budget.

Once the budget has been approved, the DoD solicits bids from civilian companies to produce the equipment or provide the services outlined in the budget. Most bids are competitive—that is, several companies may submit bids for the project. After receiving project specifications from the DoD, each potential contractor draws up a proposal. This document makes a case for choosing the company to handle the project and includes a cost estimate. The DoD selects the company whose product or service seems best suited for its needs, taking into account the cost. Although the best option may be too costly, the least expensive one may not fill all of the DoD's needs.

In some cases, the DoD awards noncompetitive, or no-bid, contracts, simply choosing a company to take on a particular project. This usually occurs when the DoD needs a specialized product or service that can be provided effectively by only one firm. For example, after the 1991 Gulf War, the DoD awarded firefighter Paul “Red” Adair a no-bid contract to put out hundreds of oil-well fires started by Iraqi troops retreating from Kuwait. Adair, with decades of experience extinguishing oil-well fires, was considered the only person capable of organizing the effort successfully.

More recently, oil-field services provider Halliburton has been the focus of attention for the large no-bid contract it was awarded to rebuild Iraq's oil industry following the Iraq War of 2003. Some observers see favoritism at work in the selection of Halliburton, a company for which Vice President Dick Cheney served as chief executive officer just prior to taking office in the administration of President George W. Bush. The DoD argued that Halliburton's Kellogg, Brown, and Root (KBR) subsidiary was the only firm with the size and experience to handle the job. Two years after the end of combat, the effort to restore Iraq's oil industry was still lagging well behind schedule; additionally, Halliburton had been cited for over-billing for some of KBR's work.

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