SAN DIEGO – The Secretary of the Navy Thursday warned industry that companies would face consequences for prioritizing shorter term profits over delivering capabilities on time.
“Overall, many of you are making record profits, as evidenced by your quarterly financial statements. And while I’m very happy for you, you can’t be asking the American taxpayer to make even greater public investments while you continue, in some cases, to goose your stock prices through stock buybacks, deferring promised capital investments, and other accounting maneuvers that to some seem to prioritize stock prices that drive executive compensation rather than making the needed fundamental investments in the industrial base in your own companies at a time when our nation needs us to be at all ahead flank,” Secretary Carlos Del Toro said during a Thursday speech here at the WEST 2024 conference co-hosted by U.S. Naval Institute and AFCEA.
He acknowledged the COVID-19 pandemic had a negative impact across the supply chain, but the contractors all need to move beyond that.
Del Toro said while he has committed to providing clear industry requirements, robust future pipelines and stable investments, “I also need industry to do your part as well to provide a proper return on investment for the American taxpayer. I need you to deliver platforms and capabilities on time and on budget. Without excuses.”
Del Toro warned that he has directed the contract community in the Navy Department’s Office of General Counsel “to ensure that we will leverage all legal means at our disposal to ensure that the American people are also getting what they paid for.”
He said this is working through initiatives called a “taxpayer advocacy project” and he has an obligation to make sure American taxpayers get the “proper return on investment.”
Del Toro said this means the Department of the Navy is holding companies accountable for poor performance and misconduct and aims to deter others from misconduct or bad performance.
“Now I’ve directed a deep dive into holding individuals accountable for chronic poor performance or misconduct as well. Not just to hold personnel responsible for their own actions, but to deter those who even is considering taking similar actions in the future,” he said.
Del Toro argued “the global strategic situation demands” that Navy contracts are delivered on time and on budget.
He also said while the Department of the Navy recognizes it will not always completely own all intellectual property rights in duel use technology “we also must ensure that when contractually required, we receive delivery of the technical data that we need to maintain and sustain our platform so that all these great warriors can actually do the necessary repairs if called in conflict forward.”
In 2022, Under Secretary of the Navy Erik Raven struck a similar but much less pointed note, arguing while the service needs to understand the constraints of the industrial base, “we need industry to perform to what they’ve promised and we need to hold them accountable. But also we need to work with industry to understand the stressors that are on their plate” (Defense Daily, Sept. 7, 2022).
At the time, Raven said the Navy was prepared to help industry partners solve some problems, but they need accountability and to understand how quickly they expect to see improvements.
Raven said the government was specifically talking about those industry issues with shipbuilders that were dealing with labor issues and previous high inflation levels.
This time, Del Toro emphasized he will not let up on this push.
“For those of you who don’t think that I will not hold firm on this, you obviously don’t know me very well.”