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New Details Emerge in Boeing Spare Parts Overbilling

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Once again, taxpayers are getting hosed on the purchase of military spare parts.

This week, Bloomberg reported more details about a Department of Defense Inspector General (DoD IG) audit report finding that the Defense Logistics Agency (DLA) overpaid by about $13.7 million on more than $81 million of spare parts purchased from Boeing. (The full report is “For Official Use Only” and can only be obtained through a Freedom of Information Act request. A summary of the findings was released two weeks ago and is posted here.) According to Bloomberg, the DLA will seek a full refund from Boeing for the overcharges, which include such egregious examples as a $10 aircraft landing gear device which Boeing sold to the DLA for $2,286.

This is the second such instance for Boeing in two years. In May 2011, the DoD IG caught Boeing overcharging the Army by $13 million—more than 131 percent above “fair and reasonable” prices—for helicopter spare parts.

This problem isn’t limited to Boeing. In September 2011, the DoD IG discovered that United Technologies Corporation’s (UTC) Sikorsky Aircraft unit overcharged the U.S. Army by nearly $12 million for Blackhawk helicopter spare parts. Three earlier DoD IG audits—in 1998, 2003, and 2006—detailed how another UTC subsidiary, Hamilton Sundstrand, charged the military exorbitantly inflated prices for spare parts. In August 2011, the Special Inspector General for Iraq Reconstruction (SIGIR) disclosed egregious examples of overbilling for spare parts and equipment by Dubai-based logistics contractor Anham LLC. SIGIR found that Anham overcharged the military by at least $4.4 million, selling parts marked up thousands of percent above market prices.

Don’t be quick to lay all of the blame on the contractors, though. In every one of these instances, the government made itself vulnerable to overcharges because of weak contract oversight and the failure to perform adequate cost or price analyses. The Pentagon buys parts from contractors when the same parts can often be procured from its inventory at much lower cost. Just how badly the Pentagon keeps track of its vast inventory was made clear recently by the DoD IG, which found $900 million worth of Stryker replacement parts going to waste in a warehouse outside Auburn, Washington.

 

By: Neil Gordon
Investigator, POGO

Neil Gordon, Investigator Neil Gordon is an investigator for the Project On Government Oversight. Neil investigates and maintains POGO's Federal Contractor Misconduct Database.

Topics: Contract Oversight

Related Content: Contractor Accountability, Defense, Spare Parts

Authors: Neil Gordon

Submitted by Anthony at: November 5, 2013
A lot of the costs allocated to piece parts and LRU's are due to the prime contractor's assigning indirect costs (i.e, subcontractor management fees, etc.) and also direct costs from activities such as qualification testing of the supplied parts. Keep in mind that the prime contractor needs to meet a threshold percentage of the total costs for a contract. If not, then there is a FAR clause that says the prime contractor (or systems integrator) cannot be part of the contract.

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