The Unredacted Truth About Spare Parts Overcharges
Source: Department of Defense Inspector General
Ref: DODIG-2014-088 (Project No. D2013-D000CH-0151.000)
Dated July 3, 2014; issued by the POGO on Feb 23, 2015
98 PDF pages

More than 30 years after the $7,600 coffee pot and the $436 hammer, weapon spare parts overcharges remain the clearest example of how the Department of Defense (DoD) wastes billions in taxpayer dollars. Numerous audits by the DoD Inspector General (IG) have unearthed Boeing overcharging up to 177,000 percent for spare parts, Sikorsky charging $2,393 for a $181 Black Hawk part, Hamilton Sundstrand increasing part prices by as much as 900 percent, and other examples of outrageous overcharges.

But understanding the scope of the problem becomes harder when the Pentagon’s independent watchdog redacts the true scale of the overcharges, and preventing it is impossible as long as the DoD is forced to use an ill-defined definition of commercial items.

The DoD IG recently released a redacted version of a July 2014 report that found the Defense Logistics Agency (DLA)—the Pentagon’s hardware store—potentially overpaid Bell Helicopter (a subsidiary of Textron) $9 million on 33 of 35 sole-source commercial parts. That the parts were designated commercial and bought on a sole-source contract essentially means there was no competition and the government won’t receive any pricing data from the company. The prices of the individual parts, and the percentage of the overcharges, are all redacted in the DoD IG’s release as (b)4 exemptions to the Freedom of Information Act—commercial proprietary information.

But Tony Capaccio at Bloomberg Business filled in the gaps of overcharges that ranged from 3 to more than 17 times the fair and reasonable price including:
-- $8,124 for a $445 bevel gear
-- $492.17 for a $36.08 straight-headed pin
-- $237.51 for a $25.86 shim
-- $29.95 for a $7.49 sleeve spacer

The Project On Government Oversight has obtained the unredacted report, which includes a litany of additional examples. On average, the overpayment for the parts analyzed was 392 percent, and DoD IG expected DLA would waste another $2.6 million over the next year under the contract.

Last July, when Representative Jackie Speier (D-Calif.) asked Pentagon acquisition chief Frank Kendall about these overcharges, he told her, “I think what you described is basically fraud: someone who’s charging us 10 times what something costs.”

While POGO understands that the pricing data can be sensitive proprietary information, we were surprised that the DoD IG redacted its own analysis of the overcharges until we discovered that Bell Helicopter refused to release any pricing information to the contracting officer or the DoD IG until the IG issued a subpoena.

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