Apple, Google Would Gain From Defense Measure Passed by House

Silicon Valley giants such as Apple Inc. and Google Inc. stand to benefit from a $611.8 billion defense policy measure passed by the House Thursday over a veto threat from President Barack Obama.

The compromise bill negotiated by House and Senate defense leaders would revamp the way the Pentagon buys weapons and expedite technology purchasing.

It’s aimed at streamlining the Defense Department’s ability to buy commercial items, part of a drive to foster collaboration with Silicon Valley companies, which have been wary of the military’s complex acquisition procedures. Companies wouldn’t have to share proprietary pricing data under the new procedures.

The vote on the conference report to H.R. 1735 was 270-156, sending it to the Senate. The measure didn’t get the two-thirds support to override a veto.

“This bill is a product of work from both sides of the aisle and both sides of the Capitol,” Armed Services Committee Chairman Mac Thornberry of Texas said on the House floor before the vote.

Obama and many Democrats still oppose the defense bill for fiscal 2016 because it would authorize $38 billion in one-time war funds to circumvent budget caps agreed to as part of a 2011 budget agreement. Obama wants to negotiate a new budget deal that would raise the limits on both defense and domestic programs.

The authorization measure, which caps months of negotiations between the House and Senate, includes changes championed by the new Senate Armed Services Committee Chairman John McCain of Arizona, including a ban on torture. McCain was tortured when he was a prisoner of war in Vietnam.

In the Senate, the measure may get enough Democratic support to overcome a filibuster threat. Democratic senators Tim Kaine of Virginia, a state with major defense contracts, and Joe Donnelly of Indiana are already in support of the measure.

Budget Deal

If Obama and Congress strike a budget deal in coming weeks, the defense bill could be brought back with revisions to the war funding account and to disputed provisions on detainees in Guantanamo Bay. The White House has cited both issues in threatening a veto.

Thornberry said troops don’t care whether the money is labeled war or regular funding.

“This bill is good for the troops and good for the country and that ought to override everything else,” he said.

With its authorization of funds for key weapons systems, the measure would benefit top defense contractors Boeing Co., Lockheed Martin Corp., SpaceX and Northrop Grumman Corp.

It also could be a boost to BlackRock Inc. because of a provision that would result in more military personnel signing up for 401(k)-style Thrift Savings Plan that the investment management firm already runs for the government.

Drug Costs

One of the final sticking points in the negotiations was a Senate proposal to raise co-payments to be paid by military personnel and their families when they buy drugs at retail pharmacies and through the mail. The House initially opposed any increases but agreed to small one-year increase. The increases range from $2 to $4 for 30-day and 90-day supplies of drugs.

The increases could push soldiers to buy drugs on base, where there is no co-pay, harming profits for retail drugstores including those run by CVS Health Corp., Walgreens Boots Alliance Inc. and Rite Aid Corp.

The $1.4 billion raised by the co-payment increase would be used to provide 401(k) matches for the first time to retirement funds held by military personnel. The Thrift Savings Plan has been open to the military in the past but there wasn’t a government contribution.

Under another provision in the bill, Ukraine would get lethal aid to help in its fight with Russia. That proposal has gained in popularity as the U.S. and Russia square off over Moscow’s latest military moves in Syria.

More Fighters

The bill would authorize the purchase of 12 more Boeing F/A 18 Super Hornets than Obama requested, and six more Lockheed Joint Strike Fighters for the Marines than the president had sought. It would block efforts to retire the A-10 Warthog, allowing $466.7 million for the close-air support plane.

In its overhaul of acquisition policy, the bill would put more power in the hands of service branch chiefs to control major contracts, a loss of power for the Pentagon’s central weapons-buying office.

To appease critics who say service chiefs have in the past had too large an appetite for costly new systems, the bill contains a provision taking money from their budgets if programs have cost overruns.

The changes would demote the department’s central Acquisition, Technology and Logistics office to an advisory role for some new projects that start after fiscal 2017 begins. As a practical matter, this is most likely to affect the acquisition of a new Long Range Striker Bomber. Northrop is in competition for it against a Boeing-Lockheed team.

The compromise agreement would authorize $184.4 million to develop a replacement for the Russian-made RD-180 rocket. That contract could go to Space Exploration Technologies Corp., known SpaceX.

A Senate push to phase out government-run stores on military bases, a move that could have benefited retailers such as Wal-Mart, stalled this year and did not make the final bill.

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