$20 Ice Cube Trays & $23,000 Refrigerators

Political theatrics were in high gear in the House Armed Services Committee yesterday as a $23,000 refrigerator was wheeled through a hearing room. Attendees chuckled over the excessive prices of items purchased by a Pentagon buying program, members of congress issued stern statements (i.e. Rep. Robin Hayes: “A wall of shame would be appropriate”), and promised more hearings.

Last month, a ground-breaking investigation by Knight Ridder reporters Seth Borenstein and Laurie Markoe found that the Pentagon's prime vendor program which was supposed to save money by streamlining purchases actually caused vendors to jack up prices because they faced less competition. Knight-Ridder painstakingly analyzed 7,800 purchase orders by the government, comparing prices paid by pre-approved (prime) vendors to other companies.

Knight Ridder explains: “Instead of obtaining competitive bids for individual purchases or buying directly from the manufacturers, the Defense Logistics Agency (DLA) created what it calls a prime vendor program, which encourages military bases to make purchases through a handful of favored firms. These middlemen tack on additional fees to complete the transactions.”

Hmmm. That sounds familiar. Government wide, billions of dollars in purchasing have been moving in this direction for some time where a set of vendors is pre-approved, and small businesses are shut out. Advocates of “acquisition reform” have long argued that all that soliciting bids from competing companies is too much paperwork and red tape, and that it all needs to be streamlined in order to save money.

As expected, Pentagon officials reassured the Committee that steps would be taken to contain costs. However, when pressed by the Committee's questions, officials could not explain how prices were set. Ooops. More damning, Jeff Harston, president of a company that was turned down, had an opportunity to describe his experience. According to Knight-Ridder:

Harston of Commercial and Marine Products said the DLA doesn't seem to be worrying about the prices it's charged.

After Harston failed in his bid to be a prime vendor this year, he and DLA officials critiqued his proposal.

“We were told price doesn't matter. I went, 'What do you mean price doesn't matter?'” Harston said in a telephone interview. “Never in my wildest dreams did I consider that my pricing wouldn't be considered part of an evaluation.” He proposed a 13.5 percent markup, which he said was lower than his competitors.

The Knight Ridder investigation raises serious questions not only about the Pentagon but about other programs which cut down on competition. The General Services Administration's supply schedules are the big enchilada of the menu of government purchasing programs. Knight Ridder?