[Congressional Record Volume 142, Number 128 (Tuesday, September 17, 1996)]
[Senate]
[Page S10685]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HARKIN:
  S. 2081. A bill to limit Department of Defense payments to 
contractors for restructuring costs associated with business 
combinations; to the Committee on Armed Services.


                     corporate mergers legislation

 Mr. HARKIN Mr. President, I introduce a bill that will put a 
moratorium on taxpayer subsidies for mergers between defense 
contractors, and give the Government the tools to monitor these deals 
and recoup any overpayments.
  To quote Lawrence Korb, Assistant Secretary of Defense under 
President Reagan in a recent article in the Brookings Review, 
``Remember the $600 toilet seats and the $500 hammers that had 
taxpayers up in arms during the mid-1980s? Today's subsidized mergers 
are going to make them look like bargains.''
  Here is what some public interest groups say about the policy:
  The CATO Institute--``The costs associated with mergers should not be 
absorbed by federal taxpayers. This is a egregious example of 
unwarranted corporate welfare in our budget.''
  Taxpayers for Common Sense--``It's time for the Pentagon to drop this 
ridiculous `money for nothing' policy.''
  Project on Government Oversight--``The new policy is unneeded, 
establishes inappropriate government intervention in the economy, 
promotes layoffs of high-wage jobs, pays for excessive CEO salaries, 
and is likely to cost the government billions of dollars.''
  In 1993 then Undersecretary of Defense John Deutch made a major 
policy change with regard to Defense Department acquisition practices. 
His decision allowed the DOD to start subsidizing defense contractor 
mergers.
  The taxpayers have already paid $300 million to wealthy defense 
contractors and the GAO estimates that they will pay another $2 billion 
or more in the next few years.
  If Deutch's decision was a policy change, as I believe, then the 
proper procedures were not followed. The new policy was never printed 
in the Federal Register and there was no opportunity for public comment 
on it, so the contracts written under this policy may be invalid.
  If it was a clarification of policy, as the proponents claim, then 
the taxpayers may be liable for paying restructuring costs on mergers 
all the way back to the 1950's. The cost to American taxpayers could be 
staggering.
  In either case, the decision involves an interpretation of the 
Federal Acquisition Regulations [FAR] and may allow contractors for all 
Federal agencies and departments to collect such costs. Imagine 
Medicare paying restructuring costs for all Federal agencies and 
departments to collect such costs. Imagine Medicare paying 
restructuring costs for all major hospital mergers. This could add 
billions of taxpayers dollars to the total cost of this policy.
  Proponents claim the subsidies save taxpayers money, but the record 
on these savings is spotty at best. According GAO studies of two 
business combinations the measured savings are far less than the amount 
promised. In one case the GAO found that ``the net cost reduction 
certified by DOD represents less than 15 percent of the savings . . . 
projected to the DOD 2 years earlier when they sought support for the 
proposed partnership.''
  Moreover, the cost accounting is incomplete and there is no way for 
taxpayers to recoup the costs when the amount paid to contractors 
exceeds the actual benefit received. The current practice is to measure 
only costs to the Department of Defense when contractors merge and give 
thousands of hard-working Americans the boot. The costs associated with 
Government subsidized social services like worker retraining are not 
tallied. Neither are the costs associated with lost payroll tax 
revenue. My bill would fix these deficiencies.
  Although I believe this practice must stop, I realize that is too new 
for most to make an informed decision about. That is why I am offering 
this very moderate bill. It will merely put a 1-year moratorium on 
these payments so that the Comptroller General can give us the tools we 
need to take a close look at the policy and ensure that the taxpayers 
recoup any payments in excess of realized benefits. It will also allow 
us to have hearings on this far-reaching policy change.
  So, again Mr. President, this modest bill will give us the time and 
tools we need to thoroughly examine this policy. I urge my colleagues 
to support this common sense bill so that we can study this issue with 
all the care that it deserves.
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