Audit: Boeing overcharged Army for parts to the tune of $12.6 million
Stars and Stripes June 30, 2011
CAMP FOSTER, Okinawa — A Boeing gate roller looks like a part you might buy at the local hardware store for a few dollars.
But the U.S. Army and its Apache and Chinook repair depot in Corpus Christi, Texas, paid a whopping $1,679 each for the rubber wheels from the aerospace giant during the Iraq and Afghanistan wars.
In fact, the service should have checked the military’s own hardware shelves — the same part was in stock and being sold for about $10 each by the Defense Logistics Agency, the massive in-house Department of Defense supplier, a DOD Inspector General audit has found.
It wasn’t the only part that was costing the Army more than the store price. In all, Boeing overcharged the Army helicopter depot $12.6 million between 2004 and 2010 for parts already stocked by the DOD.
And that could be a drop in the bucket.
The Army renewed an agreement with Boeing last year to buy hundreds of millions of dollars more in helicopter parts that the DOD already has in stock and must use, the inspector general reported.
The findings are part of an audit that was completed in May but released only in part by the inspector general’s office. A full version that includes details of Boeing’s activities and wider concerns over military procurement was leaked to the public this week by the nonprofit watchdog group Project on Government Oversight.
Beginning in 2004, the Army signed several contracts with Boeing worth more than $1 billion to provide helicopter parts to the Texas depot for the war efforts. The contractor charged well over “fair and reasonable” prices for 18 of those parts — some prices were hiked up by over 1,000 percent — with the complicity of Army personnel, according to the audit.
“Boeing officials routinely proposed and [Army depot] officials accepted egregiously deficient cost or pricing data based on unrealistically low quantities that had no relationship to the quantities required or the actual price Boeing negotiated with its subcontractors,” the audit found.
In the case of seven parts, the contractor charged the Army significantly higher prices than it got from its supplier just months later.
For example, Boeing was selling the Army sleeve bushings for $393 each on average in July 2005. Three months later, it bought the same sleeve bushings for $25 apiece, according to the audit.
“We calculated that the Army paid Boeing $258,676 for the 658 sleeve bushings procured when they should have paid only $25,614 — a difference of $233,062, or 909.9 percent,” the inspector general reported.
Meanwhile, the Corpus Christi Army Depot and its parent command, Army Aviation and Missile Life Cycle Management Command, ordered parts from Boeing and never checked for a better deal from the Defense Logistics Agency, which supplies about 84 percent of the military’s parts and has an inventory worth $340 million.
“No one had taken responsibility to determine whether sufficient inventory was available to meet the requirements before procuring new parts,” the inspector general found.
Now, the Army depot has a new contract with Boeing that was signed last year and commits it to procuring more helicopter parts from the contractor even thought the hardware is already owned by the military.
“Officials plan to buy $555.8 million … of inventory from Boeing over the next 5 years,” the audit says. “However, based on June 2010 Federal Logistics Information System prices, we calculated that DOD had $339.7 million of the same parts in inventory that must be used.”
The Army has reviewed the audit findings and said it will take action to avoid more waste.
A memorandum of agreement will be signed between the Army, the Defense Logistics Agency and Boeing that will “ensure that government inventory is used as a first priority,” Maj. Gen. Jim Rogers, commanding general of Army Aviation and Missile Life Cycle Management Command, said in a response to the findings included in the audit.
However, the Army said it will not seek reimbursements for parts that Boeing sold for much more than it paid. The audit does not say how much the price differences could have cost the U.S. taxpayer.
Rogers said there is “no justification to request a refund” because Boeing signed a fixed-price contract, the Army agreed to the costs and the new parts prices were negotiated with suppliers after the fact.
Boeing has repaid the Army about $1.3 million for the 18 overpriced parts. The company also gave the Army a credit of $324,000 for the gate roller wheels, the audit said.
The company is cooperating fully with the audit and is improving the procurement process to avoid similar errors in the future, Boeing defense spokesman Dan Beck said Thursday.
“In a period of about three years during wartime at the Corpus Christi Army Depot, we contracted for nearly 8,000 individual parts,” Beck wrote in an e-mail response to Stars and Stripes. “The handful of errors cited by the IG’s initial report represents an extremely small part of our outstanding support to our Army customer.”
But the procurement issues are not isolated to Boeing and the Army — and could cause larger waste within the DOD if fixes are not made, the inspector general said.
The Air Force recently let $70 million worth of hardware sit on DOD shelves while it bought the same items from its contracted suppliers. That 2010 audit was also redacted by the office.
So far, there is no over-arching DOD rule on using up stocks of pricey parts and hardware.
“DOD still needs to implement comprehensive policies and procedures requiring reviews of inventory levels and the use of existing DOD inventory before procuring the same parts from a private contractor,” the inspector general wrote. “If this does not happen, hundreds of millions of dollars will be wasted as the inventory sits in DLA warehouses, and DOD pays private contractors to provide the same parts.”