Pentagon contractor accused of overcharges is pursued by lawmakers
Bloomberg April 18, 2022
Two senior lawmakers have joined the Pentagon in pushing for TransDigm Group to pay $20.8 million in voluntary refunds for the costs of spare parts that were deemed excessive by the Defense Department's inspector general.
The $20.8 million "may be only the tip of the iceberg," Democratic Rep. Carolyn Maloney of New York, chairwoman of the House Oversight Committee, and Republican Sen. Chuck Grassley of Iowa wrote in a letter to TransDigm Group President Kevin Stein released on Monday.
TransDigm, one of the Pentagon's largest spare-parts suppliers, collected excess profits on 105 parts from early 2017 to mid-2019, according to a two-year inspector general's inquiry into the company's business model that was released in December.
The watchdog "reviewed a sample of just 3% of TransDigm's contracts from January 2017 through June 2019. The inspector general didn't examine any contracts from July 2019 through the present, when DoD awarded TransDigm over $500 million in contracts," the lawmakers wrote.
TransDigm has emerged in recent years as a key sole-source provider of spare parts for Pentagon airplanes and helicopters, including F-16 jets and AH-64 Apache and CH-47 helicopters. From Oct. 1, 2014, through April 11, 2019, the Defense Department executed 4,697 contract actions with TransDigm and its subsidiaries valued at $634.7 million.
Maloney has said TransDigm's strategy is to identify suppliers of specialized sole-source contracts on mission-critical parts, buy those companies and then hike prices.
In January, the Pentagon's Defense Logistics Agency sent 31 letters to Cleveland-based TransDigm and its subsidiaries requesting voluntary refunds. The letters called for TransDigm and its subsidiaries "to return their excess profits" and "demonstrate a good-faith effort to correct misspent taxpayer dollars," Maloney and Grassley said in their letter.
As of Friday no refunds have been received, according to the Defense Department. The Pentagon's Defense Pricing and Contracting Office "is awaiting a response," Jessica Maxwell, spokesperson for the Pentagon acquisition office, said in an email.
If TransDigm declines the request to issue refunds, the department can't "compel TransDigm to provide a voluntary refund," she said.
After a congressional uproar over earlier pricing revelations, TransDigm agreed in May 2019 to provide a $16 million refund for overcharges linked to purchases in 2015 through 2017.
But TransDigm has consistently opposed a voluntary refund in the current case, contending the inspector general's methodology for calculating "excess profit" was seriously flawed.
"We continue to be engaged with the DoD to discuss the report and concerns with the arbitrary standards used to arrive at the suggested voluntary refund," TransDigm spokeswoman Jaimie Stemen said in a statement.
Democratic Sen. Elizabeth Warren of Massachusetts, a member of the Armed Services Committee, said in an email that "refunds for excess profits by defense contracting companies should be mandatory, not voluntary. When we keep doing business as usual with companies that rip off Americans, we're inviting them to continue picking taxpayers' pockets."
Maloney and Grassley said in their letter that if TransDigm chooses not to issue a refund it must produce by April 29 Pentagon contract documents from July 1, 2019, through the present that include the description and stock number of the parts sold, TransDigm's manufacturing cost per unit, the contract price per unit and total contract value.