False Profits: Air Force Contractors Reap Taxpayer-Funded Windfall

The U.S. Air Force might have paid contractors tens of millions of dollars in unwarranted profits, according to a new report by the Department of Defense Inspector General (IG).

The report concluded that the Air Force did not effectively negotiate labor profit and fees with contractors providing depot maintenance services on F-15, C-5, C-130, and C-17 aircraft at Robins Air Force Base. As a result, the IG estimated that three contractors—Boeing, Northrop Grumman, and Honeywell—were collectively paid between $9.6 million and $24.9 million in questionable profits and fees.

The IG reviewed only a small subset of Robins depot maintenance contracts—3 out of 33—so the overall amount of questionable or excessive contractor profit payments could be much higher. The three reviewed contracts are sole-source, public-private partnership (PPP) awards with an estimated value of more than $590 million through fiscal year 2019.

The IG found that Air Force contracting officials did not properly assess the relative difficulty of the work. It determined that the contracts entailed a relatively low performance risk to the contractors, which would have justified a reduced profit.

Contracting officials also did not eliminate profit and fees for “non-repair costs” (costs that did not directly support maintenance work, such as office supplies, depreciation of buildings, and salaries). Doing so would have netted the largest savings, since non-repair costs accounted for 69 to 78 percent of the profit and fees paid to the three contractors, according to the report.

“We believe that the contractor should earn a reasonable profit or fee on the depot’s work if they are responsible for a depot’s performance,” the IG reported. “However, contracting officials missed an opportunity to reduce or eliminate profit and fees for work performed by the WR-ALC [Warner Robins Air Logistics Complex] depot.”

The IG recommended ways the Air Force could improve management of the program. It did not recommend recovering any of the questionable payments.

This is not the first time the Pentagon’s watchdog has highlighted waste and mismanagement in Air Force depot maintenance PPPs. In 2010, the IG discovered serious problems in this program at several bases. For example, at Robins it found that lax Air Force oversight left Boeing owing the government $3.1 million in C-17 maintenance expenses.

We hope that the Air Force has learned from its mistakes and will make the necessary changes to ensure it can effectively collaborate with its contractor partners while keeping costs under control.