Defense Industry:

Consolidation and Options for Preserving Competition

NSIAD-98-141: Published: Apr 1, 1998. Publicly Released: Apr 1, 1998.

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Pursuant to a legislative requirement, GAO provided information on major defense market areas that have been affected by contractor business combinations since January 1, 1990, and described the changes in the number of businesses competing in those market areas.

GAO noted that: (1) the sharp decline in spending by the Department of Defense (DOD) since 1985 has resulted in a dramatic consolidation of the defense industry, which is now more concentrated than at any time in more than half a century; (2) as the single customer for many products of the defense industry, DOD must have the ability to identify and address potential harmful effects of mergers and acquisitions; (3) questions have been raised about whether the consolidation has gone too far--adversely affecting competition in the industry; (4) many defense industry mergers and acquisitions are recent, so there is little evidence that the increased consolidation has adversely affected current DOD programs; (5) antitrust reviews have identified some problems, and remedies have been implemented; (6) however, the consolidation could pose future problems unless DOD improves its ability to identify problem areas and devises alternative ways to maintain competition in defense acquisition programs; (7) DOD can take several approaches to maintain competition; (8) for example, it can design acquisition strategies to compete missions rather than products and provide funding to help develop alternative suppliers or technologies; (9) however, DOD cannot know what action to take unless it has adequate visibility into the industrial base--especially at the lower tiers; and (10) progress has been slow in gaining that visibility.

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