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Pentagon Still Allowing Contractors To Massively Overcharge For Parts
The Daily Caller ^ | July 9 2014 | Tristyn Bloom

Posted on 07/09/2014 9:44:10 AM PDT by PoloSec

The Department of Defense has overpaid $9 million dollars for spare parts, and stands to overpay another $2.6 million over the next year because officials didn’t bother doing price research, according to a recent audit.

“The contracting officer did not sufficiently determine whether prices were fair and reasonable for sole-source commercial parts negotiated on contract SPE4AX-12-D-9005,” the report reads. “This occurred because the contracting officer did not perform an adequate analysis when procuring sole-source commercial parts.” (RELATED: Pentagon Spends $150 Per Gallon On Green Jet Fuel)

Bloomberg reports that the DoD paid $8,123.50 each for gears that should have cost $445.06 — an 18-fold markup.

The Office of the Inspector General, who performed the audit, wants the DoD to recoup the money from the contractor, Bell Helicopter, saying that “the contracting officer [should] assess and implement available options to voluntarily recover from Bell about $9 million in excessive payments.” The company is not legally required to pay any money back.

A Bell spokesman told Bloomberg that the company “does not agree with the findings or recommendations” and that “Bell Helicopter has fully complied with all applicable regulations, and continues to adhere to its policy, which ensures that the U.S. government consistently receives the best price on commercial items acquired for its use.” (RELATED: The Pentagon Is Cooking Its Books By The Billions)

The Inspector General’s office had to subpoena Bell to obtain cost data that showed how massively the company was overcharging the government. DOD officials maintain that “Bell has consistently refused to provide [us] cost data for commercial parts.”

The Pentagon has a history of not seeking out competitive prices. A 2011 audit found that they overpaid $200 million on several military contracts, doing things like paying over $1,600 for $7 wheels. In 2013 Boeing was asked to refund over $13 million in payments for overcharging the government, a claim it settled by providing the agency with just $3.2 million in parts. That dust-up echoes a similar scandal in the 1980s, when Boeing had to cough up $5.2 million for prices “in excess of what Boeing management considered to be reasonable” after an internal audit. The repayment was voluntary.


TOPICS: Government; News/Current Events
KEYWORDS:
Don't expect congress to do anything about it, its been going on forever.

Congress critters need to keep the funds flowing into their retirement accounts.

1 posted on 07/09/2014 9:44:10 AM PDT by PoloSec
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To: PoloSec
When I was in the Air Force, small electronic parts such as a diode, which cost $0.59 for a blister pack of 5 at Radio Shack, came individually wrapped in an airtight two layer package (inside mylar, outside brown paper) with the National Stock Number, lot number, date code, and contractor's name stamped on the outside. I'm sure those diodes cost at least $5.00 each.

If the military wants COTS pricing, they have to buy in COTS packaging as well.

2 posted on 07/09/2014 9:49:58 AM PDT by Yo-Yo (Is the /sarc tag really necessary?)
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To: PoloSec
Change we can believe in . .
3 posted on 07/09/2014 9:50:05 AM PDT by ▀udda▀udd (>> F U B O << "What the hell kind of country is this if I can only hate a man if he's white?")
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To: ├čudda├čudd

It’s not their money, they do not care. Same goes for those negotiating contracts with public employee unions.


4 posted on 07/09/2014 9:51:17 AM PDT by GeronL (Vote for Conservatives not for Republicans)
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To: PoloSec
Having worked in the Defense contracting community for decades my bet is on the DOD/Govt insisting on absurd requirements for what may seem as simple commercial items, which drives the contractor to cover this in the price. If the CO is not conducting a proper cost/price analysis to determine that he is getting a “fair value” then he should be disciplined. I witness about 75% of contracts that were required to be changed by the CO for stupid reasons and the contractor has no option but to implement the change through the FAR “Changes” clause. If the contractor does not have a reasonable system of tracking these changes and submitting cost/price change proposals to the CO then they “eat it”. Contracting with the monopolistic USG is not all it is cracked up to be, particularly in complex acquisitions.

And it is far worse the further down the subcontractor chain you find yourself.
5 posted on 07/09/2014 9:53:55 AM PDT by Cheerio (Barry Hussein Soetoro-0bama=The Complete Destruction of American Capitalism)
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To: Yo-Yo
As well, the government often requires expensive acceptance testing for materials and they may require lots of paperwork along with the product. This stuff adds up quickly.

When they specify that a widget is supposed to be bought from a minority or woman owned business that may tack on quite a premium to the price as well. These are the rules set by Congress and the executive branch...

6 posted on 07/09/2014 9:57:51 AM PDT by 17th Miss Regt
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To: Cheerio

Indeed you are correct. Thank you for providing insight.
Too many just jump on the issue and never take the time to learn the system and why it is broken and why it results in inflated prices.


7 posted on 07/09/2014 9:58:00 AM PDT by Hulka
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To: Yo-Yo

And COTS engineering. Government RFPs are filled with requirements that have equivalent COTs products, but with minor differences that equate to enormous engineering and tooling costs. If you have to recoup all those costs on a one-off or small-run product, then it is not going to be cheap.

Businesses that have to make a profit would never build in such costs. If FWA (fraud, waste and abuse) was an alphabet agency, their budget would dwarf most other agencies.


8 posted on 07/09/2014 10:01:41 AM PDT by antidisestablishment (Islam delenda est)
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To: PoloSec

Here is someplace we could responsibly cut defense spending without negatively impacting readness.


9 posted on 07/09/2014 10:07:33 AM PDT by TBP (Obama lies, Granny dies.)
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To: PoloSec

I’ve long wondered about the proverbial $700 government toilet seats. Was it $20 for the toilet seat and $680 excess profit, or was it a $20 toilet seat with $680 of paperwork?


10 posted on 07/09/2014 10:07:44 AM PDT by omega4412
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To: PoloSec
Don't expect congress to do anything about it, its been going on forever. Congress critters need to keep the funds flowing into their retirement accounts.

This is right on point. Having been a contracting officer in the military I witnessed the extreme influence brought to bear by politicians to secure contracts for their districts and states. Not always, but many times these contracts were let to firms that were in no way the best qualified or the lowest bidders. The pols have their hands in them all the time.

11 posted on 07/09/2014 10:10:02 AM PDT by Don Corleone ("Oil the gun..eat the cannoli. Take it to the Mattress.")
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To: PoloSec

Actually, MOST of the cost is for fulfilling utterly BS requirements placed on procurement by the Government.

Like requiring so much of the contracts to be awarded to “small disadvantaged businesses”. Or many other asinine requirements. . .

Example: One contract I was on, we were buying semiconductor chips as part of a system build. We had to certify, with proof, multiple inspections, and a massive paperwork trail, that we were NOT purchasing materials made from “conflict minerals”. Because there’s a law which forbids the Gov from buying from “tainted” sources. . . so even if the minerals were mined and refined in the US, and used in a US Chip fab. . .we STILL had to prove no “conflict minerals”. . .

$250 dollars or so of chips caused something like $10K in additional overhead, fees, certifications, etc. . .


12 posted on 07/09/2014 10:12:26 AM PDT by Salgak
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To: PoloSec
Why single out the Pentagon. I'll bet every agency is just as bad if not worse. Just look at this illegal alien bill.
13 posted on 07/09/2014 10:12:35 AM PDT by McGruff (It's not the crime, it's the cover-up they said.)
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To: PoloSec

Well, they DO have to pay for the detention facilities at Area 51 somehow...


14 posted on 07/09/2014 10:13:24 AM PDT by MrB (The difference between a Humanist and a Satanist - the latter admits whom he's working for)
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To: PoloSec

so don’t car dealerships


15 posted on 07/09/2014 10:17:41 AM PDT by NonValueAdded ("The Arab Spring is over. Welcome to the Jihadi Spring." Jonah Goldberg)
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To: PoloSec

I stopped doing business with the federal govt for the most part. They insist on nickle and dime me as a small business. I’ve had contracts where was charging twice my hourly rate and justified it as their expenses were higher.


16 posted on 07/09/2014 10:17:54 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: Yo-Yo

The one thing the article does not address is the additional cost of doing business with the government as compared to doing business with anybody else. The documentation is staggering. The packaging can be illogical. Boilerplate procurement requests with extraneous and unrelated requirements attached.

Anyone else wanting a shovel, or a hundred shovels goes out and buys good shovels at a decent price. The government puts out 150 pages of specs and buys a shovel for 10 times the price. And buys a shovel that nobody has ever built before.


17 posted on 07/09/2014 10:20:02 AM PDT by DariusBane (Liberty and Risk. Flip sides of the same coin. So how much risk will YOU accept? Vive Deco et Vives)
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To: Cheerio

I have a small manufacturing company and produce aircraft parts. Aircraft parts are already expensive for commercial and general aviation with their requirement. A part I can literally make in 10 minutes will require 10 hours of paperwork and documentation. Add another 5 for packaging. I got my first military contract 3 years ago. That same 10 minute part can take 20 to 30 hours just to get out the door. I have to cover that cost. So when peopl wonder why a simple gear would cost so much don’t get too angry too quick.


18 posted on 07/09/2014 10:25:29 AM PDT by Organic Panic
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To: PoloSec
Great prices come with mass production and volume sales to recover the sunk cost of setting up a production line over a large number of items. When the government requests 5 items that have been out of production for 20 years, there is a big cost to build the products again from original specs with current materials. You aren't ordering enough stock to spread the costs. If the government doesn't want to pay the price, don't order short runs of out of production items. If the government is going to start persecuting contractors for doing what was requested, there will be lots of "no bid" responses for future requests.
19 posted on 07/09/2014 10:28:38 AM PDT by Myrddin
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To: PoloSec
What is remarkable here is that we're crabbing about $200 million in "overpayments" to DoD contractors over multiple years while Obama asks $4.6 BILLION to pay for illegal alien invaders. Moochie and Ovomit have personally racked up over $1.5 BILLION in travel expenses since taking office. That is obscene.
20 posted on 07/09/2014 10:31:27 AM PDT by Myrddin
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To: Organic Panic

I agree. I have been a contractor on military bases before and the red tape and hours of documentation is nuts. We had an electronic panel get doused with steam when a pipe burst in a jet engine test facility. After drying out the panel contents and testing for functionality, they asked for someone in our company to sign off and be responsible for the $100 million dollar test if the boards didn’t work. Because the electronics had never been tested against long term effects of being sprayed down with steam, the only way we could sign off was if the entire panel was replaced with new boards at a cost of $6000 in parts alone.


21 posted on 07/09/2014 10:40:39 AM PDT by Boiling point (Socialism; Ideas so good they have to be mandatory.)
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To: omega4412
I’ve long wondered about the proverbial $700 government toilet seats. Was it $20 for the toilet seat and $680 excess profit, or was it a $20 toilet seat with $680 of paperwork?

It was a toilet seat custom manufactured to fit on a P3 Orion toilet. It was custom built to original specs to fit on an aircraft that has been out of production for years. It bolts directly in place with no airframe modifications or recertifications required. Recall that aircraft parts have an expensive certification and maintenance tracking protocol. Custom builds to spec and short runs make for expensive items.

22 posted on 07/09/2014 10:41:58 AM PDT by Myrddin
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To: PoloSec
This is for military helicopters. Has anybody who complains about the excessive cost ever looked at a set of “milspecs” the detail the source and quality control steps associated with the making of a cheap part, but with excessive (read that expensive) documentation and testing?

The problem is not the contractors over-charging the military, it is the military procurement policy that can transform a washer purchased at Home Depot for 10 cents, into a custom built washer packaged with $59.90 of paperwork on the mine the iron came from, the batch of steel it was produced in, the milling machine that made it and testing documentation at each step.

23 posted on 07/09/2014 10:43:57 AM PDT by Robert357 (D.Rather "Hoist with his own petard!" www.freerepublic.com/focus/f-news/1223916/posts)
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To: PoloSec

how are they going to buy the “black” purchases that nobody knows about? Lots of stealth equipment and R&D go into a $500 toilet seat.,,,,oh had kickbacks, graft and bonuses for flag officers on the gravy train as “consultants”.


24 posted on 07/09/2014 10:44:42 AM PDT by Dick Vomer (democrats are like flies, whatever they don't eat they sh#t on.)
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To: omega4412
Paperwork is part of it.

Onerous and fantastic regs add a considerable amount.

But in addition to all this, in defense related programs, you get the full support of the firm for the product delivered for the life of the contract - sometimes beyond.

Then there is the phenomenon of contributing costs to contracts that have expired, but on which the government wants work to continue, until such time a new contract, with new terms and requirements, is signed.

Happens all the time.

Defense work is expensive, laborious, time consuming, and most of all, cutting edge.

For the DOD and contractors, the work is such that it is very fluid, as the threat is always changing. Should a war or conflict ensue, you don't want 5-year old technology employed against the enemies’ state of the art technology, do you?

Defense contracts are huge, but so is the amount of work involved in delivering on them.

The $500 toilet seat, or the $1500 hammer, is a straw man. These items are so priced because DOD, DIA, CIA, and NSA (maybe more) are charging for things they don't want you, or, more importantly, the enemy, to know about.

Is there fraud, graft and corruption involved in these things? Most probably. And it should be rooted out, if it exists.

But no matter how you view it, Defense is still, now, and always gonna cost a lot of money.

A lot!

CA....

25 posted on 07/09/2014 10:45:20 AM PDT by Chances Are (Seems I've found that silly grin again....)
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To: omega4412
Was it $20 for the toilet seat and $680 excess profit, or was it a $20 toilet seat with $680 of paperwork

Paperwork, verification testing, acceptance testing, documentation, requirements, design traceability... believe me it can spiral into crazy land very very fast. It is easy to make a toilet. It is hard and time consuming to PROVE it works, prove it the same as the last one you sold them, and have all the paperwork in place to be audited if that one seat ends up defective. 20$ does not begin to cover it. The military has to wave a LOT of their standard operating procedures to get things for what civilians pay.
26 posted on 07/09/2014 11:08:25 AM PDT by TalonDJ
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To: omega4412

It may be that they had to specially design the toilet seat to fit their requirements and then they only wanted 18 of them. They still have to create a plug, then a mold, manufacture and as you point out there is almost always special packaging requirements with government contracts.

If Kohler or American Standard was making 1,800,000 toilet seats that design and engineering costs would be spread over the cost of the entire production run. The per seat cost is much less. This is the way it was explained to me once.


27 posted on 07/09/2014 11:10:33 AM PDT by woodbutcher1963
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To: Yo-Yo
There's a pretty good chance that your $5.00 diode cost to the military vs. the $0.59 Radio Shack is not a good example. I got ahold of an electrical component catalog a while back and these types of items have an extraordinary wide range in wholesale cost.

The devil is in the details or more accurately the specifications. In this case it is in accuracy, precision, temperature and vibration ranges, shielding and such. For example with resistors, a bulk price would be a few pennies for a low end item with say 5% precision compared to several dollars for a milspec with 0.005% precision.

28 posted on 07/09/2014 11:15:48 AM PDT by Hootowl99
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To: Myrddin

That’s what I remember also. Some of the high-priced items, like the famous $500 coffee pot, were specifically ordered to survive a B1 bomber crash landing. Also, since the fleet was only going to number in the dozens, I didn’t have a problem with it.


29 posted on 07/09/2014 11:15:50 AM PDT by D_Idaho ("For we wrestle not against flesh and blood...")
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To: Yo-Yo
There's a pretty good chance that your $5.00 diode cost to the military vs. the $0.59 Radio Shack is not a good example. I got ahold of an electrical component catalog a while back and these types of items have an extraordinary wide range in wholesale cost.

The devil is in the details or more accurately the specifications. In this case it is in accuracy, precision, temperature and vibration ranges, shielding and such. For example with resistors, a bulk price would be a few pennies for a low end item with say 5% precision compared to several dollars for a milspec with 0.005% precision.

30 posted on 07/09/2014 11:25:13 AM PDT by Hootowl99
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To: Organic Panic


You are exactly right. I remember years ago reading an analysis of why P3-C Orion Sub-chaser aircraft toilet seats cost hundreds of dollars (I think it was $600 back then) - it was ENTIRELY because of the USN requirements imposed on the procurement, including all the paperwork and manuals - yes manuals for a toilet seat!!!

AND the USN would not just allow the supplier to deliever them - they kept making changes throughout the period of performance for the contract.
31 posted on 07/09/2014 11:59:58 AM PDT by Cheerio (Barry Hussein Soetoro-0bama=The Complete Destruction of American Capitalism)
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To: Yo-Yo

and take COTs level testing and development.


32 posted on 07/09/2014 1:19:56 PM PDT by reed13k (For evil to triumph it is only necessary for good men to do nothings)
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To: PoloSec

the pentagon brings it upon themselves...

i quoted a job that required a bolt..just a plain old steel bolt...

but this bolt is not manufactured anymore..

so, instead of changing the friggin bolt, we have to have a company tool up and MAKE them..

cost at a bolt store, 12.00 dollars..

cost for a surplus bolt as required..9800.00 dollars..

yes, nine thousand eight hundred dollars... APIECE...

we needed 4 of them..


33 posted on 07/09/2014 2:16:32 PM PDT by joe fonebone (a socialist is just a juvenile communist)
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To: joe fonebone

Blame congress. The military procures in accordance with federal acquisition laws.


34 posted on 07/09/2014 3:47:46 PM PDT by Hulka
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To: Chances Are

Good post.

And also the phenomenon of bidding low on the intial contract to win the bid knowing you will “get healthy” on the service parts down the road.


35 posted on 07/09/2014 3:53:22 PM PDT by nascarnation (Toxic Baraq Syndrome: hopefully infecting a Dem candidate near you)
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To: nascarnation
We did a rather large program that was known as “Spares”. I didn't have much interface with it (my contracts were elsewhere), but I do know the program, which was ongoing and periodically updated, was quite profitable.

It was also a bit onerous, and other administrators I knew who worked on it weren't all that keen on administering the program.

I handled a few smaller programs that were not subject to the phenomenon you speak of (those were the kind the Pentagon wanted research and development to keep going on, regardless), but most of what I was concerned with were really huge contracts, the kind where entire floors were taken up for administering these leviathans.

As I said, Defense work entails a lot. While I enjoyed the work, there was considerable stress involved, and writing proposals (when weren't we writing proposals?) often entailed long hours and long weekends. And sometimes long travel.

But it was all good.

CA....

36 posted on 07/09/2014 10:44:14 PM PDT by Chances Are (Seems I've found that silly grin again....)
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