An analysis of vertical integration in the defense industry and its effects on DoD acquisition programs

Abstract : The Defense Department established a Defense Science Board Task Force on Vertical Integration and Supplier Decisions to determine whether vertical integration had increased in the defense industry, its potential effects on defense products, and whether DoD's acquisition reforms may mitigate any harmful effects. The Task Force final report established the findings that major defense firms had increased their vertical capabilities and very little evidence was presented that vertical integration had created systematic problems for DoD products today. Although an insignificant amount of evidence was available to conclude that vertical integration of the defense industry was detrimental to the national defense of our nation, DoD managers do believe that vertical integration posed potential future concerns to DoD. The evidence of a more concentrated industry and a dwindling defense budget are two factors which contributed to this research into the effects of vertical integration on DoD's acquisition programs. Anticompetitive practices, such as stifling innovation, shutting out other subcontractors, and establishing a monopoly in several areas which limits competition in the defense industry, are reasons for DoD concerns. Although no systematic problems exist for DoD acquisition program managers, certain issues warrant being oversimplified.