A South Carolina defense contractor pleaded guilty yesterday to bilking the Pentagon out of $20.5 million over nearly 10 years by adding hundreds of thousands of dollars to the cost of shipping spare parts such as metal washers and lamps. The parts were bound for key military installations, including those in Iraq and Afghanistan. In one instance, in 2006, the government paid C&D Distributors $998,798 in transportation costs for shipping two 19-cent washers. Charlene Corley, 47, co-owner of C&D Distributors, used the money to pay for luxury homes, cars, plastic surgery and jewelry, according to court documents.
"It is a troubling case because the fraud took place during a time of war," said Kevin McDonald, the first assistant U.S. attorney for the District of South Carolina. The $20 million "that could have gone to assist our military was diverted and used in a fraudulent manner for excessive personal enjoyment."
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/16/AR2007081602230.html
So yes I guess you are right, those $1,200 hammers are probably $200,000 hammers now. I stand corrected. Never happened, nothing to see here, move along. Poppycock. This is just one that got caught for being uber-stupid and greedy. An aberration?? I highly doubt it.
The fact is, every single nut or bolt (and hammer) that is used in military production must be guaranteed, warranteed, and insured. It's cost-effective to ensure an engine or a destroyer hull, but it's incredibly expensive to warranty bolts and the like. Also, it is typical procurement practice, to get the unit price of the overall piece down to spread larger costs over smaller component items.
The whole military contracting system is extremely difficult: contractors spend BILLIONS with no guarantee of a contract at the end; and contracts are cancelled by a simple vote of Congress.
I've worked with enough of these contractors and seen them up close to know what kinds of houses they (don't) live in and what cars they (don't) drive.