Regulating behavior is not free; it comes with costs. The overall “tax” imposed on the U.S. economy by government regulations can be difficult to accurately assess in part because many of the costs take the form of second and third order consequences. These consequences include the opportunity costs associated with efforts to circumvent burdensome regulations or that result from people who aren’t hired, activities not undertaken, inventions not brought to market and cures for diseases that never get through government scrutiny. A study by the Competitive Enterprise Institute concluded that in 2009 the cost of all government regulations came to $1.75 trillion or 12 percent of Gross Domestic Product. A study done for the Manufacturers Alliance for Productivity and Innovation concluded that the cost of manufacturing-related regulations now amounts to around $150 billion a year. Efforts to gauge the cost of regulations on defense spending have placed the burden at between 12 and 20 percent of all purchases of goods and services or from $50 billion to $80 billion.
Hopefully, the benefits of regulations outweigh the costs. The Office of Management and Budget’s most recent assessment of the impact of federal regulations concluded that the annual benefits were between $141 billion and $691 billion, while the estimated annual costs were between $42 billion and $66 billion. Much of the benefit comes from cost avoidance such as fewer illnesses and hence, improved productivity and reduced medical expenses from clean air and water regulations.
However, with the Federal Register, the document that compiles all the federal rules and regulations that businesses are required to comply with now totaling a whopping 81,405 pages, it is hard to believe that there aren’t lots of regulations that are outdated, way too costly for the benefits they provide and even simply wrong. Moreover, there are a host of regulations that are focused not on improving the environment or the health and welfare of Americans but on regulating the ways individuals and corporations interact with the government, particularly with respect to the provision of goods and services. There are thousands of pages of defense acquisition regulations that require unique accounting procedures, bidding practices and compliance behaviors intended to ensure the government gets a good deal and to prevent fraud but that result in additional costs and enormous waste. Since the Department of Defense has never tried to assess the fully burdened costs of all its regulations, including for example the huge staffs of government and private sector contract specialists, accountants, lawyers and auditors needed to manage all the regulations and reporting requirements, it really has no idea whether it is saving any money at all.
There is an apparent groundswell of interest from a number of quarters in looking at ways of reducing the regulatory burden on the overall economy and on national defense. Senator Marco Rubio proposed the creation of an independent board to set a national regulatory budget, which would aggregate the costs of all existing federal rules and put caps in place for each agency. If the total exceeded levels set out in the budget, agencies would need to repeal or rework existing regulations before it could add new ones.
Representative Mac Thornberry, the Vice Chairman of the House Armed Services Committee, is attempting to reform the entire process that governs acquisitions by the defense department. This includes Congress, whose knee-jerk response to any case of fraud or abuse has been to pass a law imposing ever tighter and more burdensome reporting and oversight requirements on the private sector. Thornberry’s approach to simplifying the process is based on the insight that the cost of the cure for overcharging, fraud and waste in terms of ever higher prices and lengthening acquisition time lines may be exceeding any potential savings. In a recent interview, Representative Thornberry observed that “We’re going to have to accept some amount of risk. . . Yes, given freedom, somebody will inevitably screw up and waste some money — or even steal it — but the cost of trying to prevent every instance of “waste, fraud, and abuse” ends up being higher than the cost of waste, fraud, and abuse itself.”
The Pentagon also has initiated its own effort to review defense acquisition regulations. Defense Procurement Acquisition Policy (DPAP) is conducting an assessment to identify impacts experienced by industry resulting from contracting statutes. Rather than attempting to rewrite tens of thousands of regulations, this effort seeks to understand what regulations drive industry to conduct non-value added activities. Hopefully it will provide an assessment of the biggest concerns/problematic regulations along with recommendations for improvement for the regulations that drive inefficiencies, lost opportunities and increased costs.
Should sequestration remain the law of the land, acquisition reform may be an important way of reducing the damage done to critical defense and domestic programs.
 Sydney J. Freedberg Jr., “Mac Thornberry On Acquisition Reform: Congress, Heal Thyself,” Breaking Defense, November 18, 2013.
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