Some of the nation’s leading defense companies are declaring war on a powerful enemy — an obscure Pentagon official named Shay Assad who has helped cut more than $500 million from military contracts with his aggressive scrutiny of their costs.

The industry’s tactics include blanketing congressional committees with proposals that would make it harder for Assad and his contracting officers to get detailed breakdowns of the companies' expenses, according to documents obtained by POLITICO. But Assad, the Pentagon's pricing director for the past five years, refuses to back down, saying: "We are going to be relentless in pursuing getting the good deal for the taxpayers."


“That's the way it is,” said Assad, a 65-year-old Bostonian with the heavy accent to match. “If companies don't like it, people have an objection to it, we're not apologizing for it."

The result is an unlikely, all-out campaign pitting giants like Boeing and Honeywell against a Pentagon official so little-known that even some top defense lawmakers say they're unfamiliar with his jousting with the industry.

Company leaders accuse Assad — a former Raytheon executive who spent more than two decades in the defense industry — of pursuing a "personal vendetta" by hounding firms large and small to justify what they charge for weapons or services. But Assad says he learned a valuable lesson from his years at Raytheon, one of the Pentagon's largest contractors: "We generally overpay for almost everything we buy."

The contractors, who are enjoying record stock prices, are actively trying to undermine him. In one proposal circulating on the Hill, they are seeking to erode contract officers’ ability to demand cost data from subcontractors — what companies view as an excessive grab of competitive information.

The request would weaken the grip of Assad’s cost squeeze, as the Pentagon uses all the extra cost information to “manage” profit margins, according to a congressional staff member with purview over the Pentagon budget who was not authorized to speak publicly. Without that information, the staffer explained, the Pentagon can’t demand better deals.

Assad seems as determined as ever to make sure industry hands over the data, citing the personal backing of his boss, Secretary of Defense Ash Carter, who created his position in 2011 when Carter was undersecretary for acquisition.

His aggressive stance seems to be paying off. Pentagon spokesman Mark Wright said Assad recently led contract negotiations for multiyear deals on the Apache helicopter, C-17 transport plane and F/A18 fighter jet "that returned in excess of $500M to the taxpayers."

Wright added that "it should be obvious what the Department thinks of Mr Assad. He was just awarded a 2015 Distinguished Presidential Rank Award."

But Assad's role is little known outside the Pentagon, as some top lawmakers seem to be unaware of the tension between Assad and the industry, including House Armed Services Chairman Mac Thornberry (R-Texas) and Ohio Republican Rep. Mike Turner, the head of the Tactical Air and Land Forces Subcommittee. Though Assad oversees all DOD contracting actions above $500 million, Thornberry and Turner told POLITICO they hadn’t heard anything about the industry's concerns.

Assad poses a unique threat to the biggest arms makers. He graduated from the U.S. Naval Academy in 1972 before spending 22 years as a senior executive at Raytheon, which last year was the Pentagon's third-largest contractor. As director of pricing, he is also member of the civil service who, unlike a political appointee, could be around for a good while.

"It's just not true that we are negotiating profit rates that are lower than what we had been doing in the past," he said. "I know, because I was on the other side of the table. I'm very aware of what industry and major corporations were negotiating for profit rates versus what we presently do."

Extracting and analyzing more cost data from the Pentagon's customers has become one of his primary focuses.

A congressional source said Assad has recently directed contracting officers, via policy guidelines and memos, to go after this kind of information. While the Defense Department already asks for cost data from the larger defense players, this recent action seeks to "go lower down the food chain."

"He has gone way above and beyond what is reasonable to extract pricing data," says one senior industry official.

Assad fires back, asserting the Pentagon is simply doing what the law has long required but it has historically failed to do.

Legally, all companies involved in a sole-source contract with the Defense Department are required to provide pricing data on any subcontractor that provides $750,000 or more in goods and services. For years, however, the Pentagon neglected to push companies on that rule.

"The reality is it's data that they should have been providing us all along," Assad said, particularly for the countless subcontractors that defense giants rely on and whose costs get wrapped into the overall price of the prime contract.

"What we're saying is, 'no, it is relevant,' and frankly, there's gold in them there hills at the subcontractor level," Assad said. "It is a challenge for the companies because they now have to deal with people who are well trained, who know what to ask for and who insist on it."

The industry is now trying to head him off.

In a legislative proposal sent to multiple defense committees, the IT Alliance for Public Sector, supported by defense firms Boeing, Honeywell and Rockwell Collins, is seeking to limit contract officers' ability to reach down into subcontractor cost data — what they refer to as unnecessary "flow-down" requirements.

All companies buy parts from the commercial world "that do not relate in any way to a particular contract, customer or customer requirements," the proposal says. Applying defense-unique rules to nearly all aspects of companies' supply chains creates a "problematic situation," as it potentially cuts into "efficiency of operations and production."



Another proposal specifically asks Congress to widen the definition of a commercial item. If something is deemed commercial — rather than a uniquely military item — industry can withhold most price data on it in for the sake of staying a step ahead of its competition on the open market. The congressional source said Pentagon efforts to limit the definition of what is considered commercial allows the government wider access to cost information.

IT Alliance Senior Vice President Trey Hodgkins, who helped form the proposals, said current Pentagon rules "erode" access to the defense market. "I think there's broad agreement in Congress that we have to find ways to lessen the burden and make this market more attractive,” he said.

While none of the three companies would address their relationship with Assad or questions on industry profit margins, Honeywell told POLITICO that the proposals put forward "provide a clear path for the government to ensure they are buying commercial products at fair and reasonable prices.”

Boeing would only allow that it was "broadly supportive of acquisitions reforms that ensure that our military — and the U.S. taxpayer — can take full advantage of the value provided by the commercial marketplace.”

Meanwhile, Rockwell Collins said it was focused on limiting the "impact of military-unique acquisition terms which flow down to our commercial supply chain," saying there are numerous small businesses the industry relies on that "are adversely impacted" by current regulations.

Assad said that in asking for price data on items that have both defense and commercial applications, the Pentagon simply wants to know if the price is "fair and reasonable."



"What we're saying to the companies is 'nobody should know better than you why the price you're charging me is fair, so just tell me.'" he said. "The issue that we have is that … in many instances, when we've bought commercial items, we haven't done as good a job as we possibly could."

Defense companies, however, want to be treated like any other commercial company — such as Apple or Samsung — when selling items to the Pentagon that are also sold on the free market.

Just as consumers willingly pay Apple or Samsung $600 for a cell phone that costs a fraction of that price to make — provided the quality is good enough — industry maintains that the government shouldn't care about the true cost of defense equipment if the market had a hand in setting the price, said Mike O’Hanlon, a defense specialist at the left-leaning Brookings Institution and a longtime Pentagon adviser.

The profit margin issue "is a big one where contractors and much of the DOD acquisition workforce part ways," O'Hanlon said. Tensions can also be pushed with the factor of the Pentagon "cost police" — its thousands of contracting officers who aggressively seek cost data on defense equipment.

While these actions can protect the best interest of the taxpayers, "one would like to see exceptions and exemptions" when dealing with commercial items, O'Hanlon said.

Tom Captain, the vice chairman and leader of the U.S. and global aerospace and defense sector at financial services firm Deloitte, backs his industry clients on this question.

"You don’t ask the car dealer, the grocery store and pizza parlor for cost data — you buy based on your assessment of best price and fair value," Captain said. "The Pentagon can do the same for commercial sourced items."

Asking for cost data for commercially available technology “is not only a waste of taxpayer money,” he said, it acts as a “disincentive to supply to the DOD for suppliers."

Providing too many specifics of cost data, Captain argued, could also reveal to competitors how they managed to reduce the costs on a system a company sells to other customers outside the government.

"You might as well run an ad, telling your competitors your prices," the industry official said, adding that companies routinely expressed "a complete lack of confidence" in the Pentagon's ability to keep pricing data secret.

Despite all the criticism, Assad insists the Pentagon's practices are not harming the defense industry financially.

Over the last five years, he contends, the top five defense companies' stock prices "have gone up anywhere from 67 percent to 180 percent for those five companies. Record cash flows, record profits, record return on invested capital." It is an assessment backed up by industry analysts.

"We're not after their profitability, we're after paying less," Assad said. "And if we can pay less and they're doing well financially, what's wrong with that? If you look at what had been happening in the past, year over year, we always paid more. ... That doesn't happen anymore. Year over year we're paying less."