The procurement procedures of the national defence institutions are structured so that waste of resources, over-spending, corruption and spiralling costs and bloated military budgets are the natural consequences. Weapons systems generally cost too much, take too long to develop and perform too poorly. For a large part of business between the military and private enterprise, negotiated cost-plus-fixed-fee contract are used rather than sealed-bid fixed-price contracts. Regardless of the type of contract, they are not binding; fixed price contracts are only tentative and provisional prices, potential losses resulting from errors, poor judgement, and performance failures on the part of contractors are averted by modifications and amendment of contracts. Close relationships between government and defence industries are maintained by hiring practices by which retired military officers readily join contractors' staffs and top industry executives move to political positions within defence departments. Classification of documents and equipment mean that only approved industries are allowed access to contracts. Defence industry lobbyists keep contact with both politically influential people and bureaucrats. Reforms in national defence procurement procedures are often called for but little is done. Elected and appointed officials face incentives to opt for quick fixes; political authorities invest little in follow-up to the changes that are made; elections are always around the corner. Adversely affected parties keep quiet and wait for the storm to pass over. Elected officials, concerned with re-election, are more interested in how a defence contract will benefit their constituency than military effectiveness.
In the USA 25 of the 100 largest Pentagon contractors have been found guilty of procurement fraud in the late 1980s, some more than once. None has been barred from government contracting. Cases involved payoffs to obtain confidential Pentagon documents, overcharging, and failure to test certain weapons components, or falsification of test results. Effective remedies to prevent recurrence are problematic because of the dependence of the government on particular corporations capable of manufacturing sophisticated weapons systems.
A senior official of the UK defence ministry was convicted in 1993 of taking £1.5 million in bribes from foreign ammunition suppliers in exchange for lucrative arms contracts in the early 1980s; this resulted in the loss of hundreds of jobs in the UK armaments industry. There had been 282 cases of fraud at defence establishments between 1982 and 1988, involving £2.9 million. The UK defence ministry reportedly had the reputation of being the most corrupt in Europe in the later 1980s and prior to subsequent change in practice. In the UK in 1993 a fraud ring was discovered to have operated within the Ministry of Defence and had allegedly made up to £14 million by ensuring that the Germans and the Danes obtained exhorbitant contracts to supply UK troops during the Gulf War. In 1993 in Germany prosecutors brought charges against a major aerospace contractor for bribery of officials.
The international munitions business is secretive and closed and involves a small and incestuous community. That makes it a suitable environment for fraud.