Mergers and acquisitions in the aerospace and defense sector will likely accelerate for the rest of this year, according to analysts at Pricewaterhouse Coopers.

Both deal volume and value were up in the first six months of 2011 compared to the same period of 2010. For the first half of 2011, there were 30 deals with a total value of $15.2 billion, a 39% percent increase in value over the previous year.

“We’re already seeing signs of significant deal flow in the second half that could lead full year 2011 totals to approach the record levels of 2007,” said Scott Thompson, U.S. aerospace and defense leader. “Defense companies continuing to reshape their portfolios, ongoing appetite from investors in the booming commercial aerospace sector and the growing stockpiles of cash on corporate balance sheets are all factors contributing to our M&A growth expectations in aerospace and defense.”

The Defense Department’s inspector general is investigating possible conflicts of interest involving the director of the Defense Advanced Research Projects Agency and a contractor she founded.

The Project on Government Oversight raised questions about $2 million in DARPA contracts awarded to RedXDefense, a company founded by DARPA Director Regina Dugan and now run by her father. Dugan has also disclosed that the company owes her repayment of a $250,000 loan.

The inspector general’s office confirmed its inquiry in an Aug. 12 letter to the Project on Government Oversight, the IG’s office said it is also conducting “a series of planned audits involving DARPA.”

“Conflicts of interest—even if they’re only perceived conflicts—undermine the public’s trust in government,” said Danielle Brian, POGO’s executive director.

A proposal to abolish the Small Business Administration as an independent agency is running into the predictable pushback from advocacy groups.

Sen. Richard Burr, R-NC, introduced S. 1116, The Department of Commerce and the Workforce Consolidation Act, which would combine SBA with the departments of Labor and Commerce.

The American Small Business League said the bill would devastate U.S. job creation. “This is a ploy by Republicans to end federal programs for small businesses, women-owned, minority owned and veteran owned firms and divert 100% of all federal contracts to their Fortune 500 backers,” ASBL President Lloyd Chapman said in a statement. “It will force small businesses all across the country to close their doors and kill millions of jobs.”

The Office of Management and Budget is looking for ideas on how to eliminate counterfeit products from the government’s supply chain.

In a notice in the Aug. 9 Federal Register, OMB said an interagency working group wants to identify gaps in legal authority, regulation, policy and guidance that undermine the security of the supply chain from counterfeit parts.

Submissions from the public are due Sept. 16.

The Defense Department has extended the comment period on its proposed rule requiring contractors to protect unclassified government information. (SAA, 7/8) After some pushback from industry over the cost and burden of installing new cybersecurity protections, DOD will accept comments for an additional three months, until Nov. 30.

More than 70,000 FAA contractors and 4,000 employees went back to work after a two-week shutdown. Congress agreed on temporary funding for the agency.

Most members of Congress had already left for their August recess when pro forma sessions of the House and Senate passed the stopgap bill. A dispute over several policy issues has stalled permanent appropriations for FAA.

During the shutdown the government lost an estimated $30 million a day because the agency could not collect airline ticket taxes.