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At the Pentagon, “The Price is Wrong”

Chinook

A Chinook helicopter

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If you went to your local hardware store to buy a ball bearing, what would you expect to pay for it? Fifteen dollars? One hundred dollars? More than the cost of a vacation to Paris for two? If you guessed the last choice, you still underestimated how much the Pentagon pays for a piece of hardware, called a “ramp gate roller assembly,” that is used in the manufacturing of Chinook helicopters.

To be exact, the Pentagon has been paying its contractor, Boeing, more than $3,357 for a simple piece of hardware. If the Pentagon had gone shopping at its own hardware store, called the Defense Logistics Agency, it could have purchased the same item for just $15.42. Now, is $3,357 a good deal for the taxpayer? Representative Jackie Speier (D-CA) certainly doesn’t think so.

This week, Representative Speier raised this outrageous overbilling as well as other cases in which Boeing has overcharged the federal government for spare parts by hundreds of millions of dollars. But that’s only counting the overcharges that the Department of Defense Inspector General (DoD IG) has found since 2010.

You can watch Representative Speier play “The Price is Wrong” here.

Earlier this year, the DoD IG found that the military overpaid by about $13.7 million on more than $81 million-worth of spare parts purchased from Boeing. And 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.

But 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 contractor, 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 failures to perform adequate cost or price analyses. The Pentagon buys parts from contractors when the same parts can often be procured from the Pentagon’s own 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. And during Representative Speier’s speech this week, she noted that the federal government has enough inventories of certain spare parts to last an entire century.

And, of course, there’s the problem of the refund. The government can go after the contractors to get them to refund the overcharges, but we’ve seen instances in which it chooses not to. I don’t know about you, but I’ll pester someone who owes me $20, let alone $13 million.

The Project On Government Oversight applauds Representative Speier for highlighting the egregious waste in the military industrial complex. Especially now, in this constrained budgetary environment, it’s important that Congress cut the fat. There must be far more vigorous oversight of military and federal contracting to ensure that taxpayers are getting their money’s worth when the Pentagon goes shopping.

Image from the Marine Corps.

By: Ethan Rosenkranz
National Security Policy Analyst, POGO

Ethan Rosenkranz Mr. Rosenkranz is the National Security Policy Analyst for the Project On Government Oversight.

Topics: Contract Oversight

Related Content: Congressional Oversight, Contractor Accountability, Spare Parts, Defense, Wasteful Defense Spending

Authors: Ethan Rosenkranz

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