Boeing charged the U.S. Army $1,678.61 for a plastic roller assembly that could have been purchased for $7.71 internally from the Department of Defense’s (DoD) own supplies. In another transaction, a thin metal pin worth 4 cents that the DoD had on hand, unused by the tens of thousands, ended up costing the Army $71.01—a markup of more than 177,000 percent. The transactions for spare helicopter parts are detailed in a previously unavailable Department of Defense (DoD) Inspector General’s report obtained by the Project On Government Oversight (POGO).
In all, Boeing overcharged the Army nearly $13 million in dozens of transactions, jacking up the price on small, mundane parts in some cases up to thousands of times more than they were worth, according to the Inspector General’s (IG) report.
The full, unredacted IG report, which POGO is making public for the first time, found that the Army paid Boeing nearly $23 million for parts that should have cost only $10 million. On average, taxpayers were overpaying 131.5 percent above “fair and reasonable” prices Boeing should have charged, according to the May 3 report. What is even more shocking is the price difference between what Boeing charged and the prices that could have been paid had the Army bought many of these items from the DoD’s own in-house supplier, the Defense Logistics Agency. The 177,000 percent example is based on a comparison with Boeing’s unit price with the logistics agency unit price.
“We’re not sure which is more outrageous—Boeing’s audacity in ripping off taxpayers, or the Army blindly accepting Boeing’s jacked-up prices,” said Danielle Brian, POGO’s executive director. “This report raises serious questions about whether this is symptomatic of a much larger problem with oversight of contracts.” As Capitol Hill debates whether the defense budget should be cut, the DoD IG report shows that there is rampant waste within the DoD’s supply chain, increasing the costs of maintaining and operating weapon systems.
In calculating what the Army should have paid, the IG figured in a 34 percent markup to represent Boeing’s overhead, general and administrative costs, and profit. The report found that the Army contracting officers rarely, if ever, questioned the prices Boeing charged. Additionally, Boeing routinely negotiated significantly lower prices with its suppliers after overcharging the Army.
The Army has resisted obtaining refunds worth several million dollars on some of the overpriced spare parts, in opposition to the DoD IG’s recommendations. For instance, one of the IG’s recommendations was that the Army should request a $6 million refund from Boeing for charging the Army for higher subcontractor prices even though Boeing negotiated lower prices from those subcontractors. In response, the Army said that "there is no justification to request a refund.”
For more information, read: Leaked Audit: Boeing Overcharged Army Up to 177,000 Percent on Spare Helicopter Parts, June 28, 2011