New Defense Bill Slaps 20% Penalty on Private Bids That Don't Partner with Army Factories

The Arsenal Workload Sustainment Act sets up a five-year pilot program designed to keep the Army’s government-owned factories—called arsenals—busy and ready. The core idea, as spelled out in Section 2, is that these manufacturing facilities are crucial for national security, and we need to keep their skills sharp and their lights on, even during peacetime, so they can ramp up quickly if needed. This isn't just about making things; it’s about sustaining a domestic defense manufacturing base and the skilled workforce that goes with it.

The 20% Rule: Making Private Bids Look Pricier

Here’s where things get interesting for anyone working in or paying for defense contracting. To push work toward the government arsenals, the Department of Defense (DoD) is required to heavily favor private companies that agree to partner with an Army arsenal on a contract. The bill achieves this through a specific mechanism: if a private company bids on a contract without partnering with a government arsenal, the DoD must add 20 percent to that company’s price during the evaluation process. This means a private company that bids $100 million is judged as if their bid were $120 million, making the arsenal-partnered bid look significantly cheaper by comparison, even if its initial price was slightly higher. This is a massive thumb on the scale intended to redirect contracts toward the government facilities.

Who Gets the Work and Why It Matters

Beyond the 20% penalty, the bill also adds extra preferences for partners who meet two specific conditions. First, the partner must use the Army’s Advanced Manufacturing Center of Excellence. Second, and perhaps most importantly for the workforce, at least 25 percent of the work done under that partnership must be performed by Department of Defense employees. For taxpayers, this means two things: we are intentionally paying a premium (the cost of the 20% penalty) to keep government facilities and DoD workers employed and skilled, rather than relying solely on the lowest private sector bid. If you’re a private defense contractor who can offer a lower price without needing government infrastructure, this new rule creates a significant, perhaps insurmountable, barrier to winning a contract.

The Check-In: Annual Reports to Congress

To keep tabs on this five-year experiment, Section 2 mandates rigorous reporting requirements. The Secretary of Defense must report to Congress annually, detailing exactly how much work went to the arsenals, where the money came from, and what capital investments—like new machinery or facility upgrades—are needed at each arsenal to keep them running effectively. This transparency is crucial because if the 20% price penalty is making things more expensive, Congress and the public need to know exactly how much that premium is costing and what benefit (in terms of readiness and infrastructure) we are getting in return. The goal is clear: sustain the arsenals. The cost is what we’ll have to watch over the next five years.