Pentagon contractor's 9,400% profit on a half-inch metal pin is challenged

[Yo_Mama_Been_Loggin]

Source: Bloomberg

The Pentagon is weighing legislation that would give contracting officers the power to demand back-up data on spare parts costs after its inspector general said TransDigm Group Inc. could be paid about 9,400% in excess profit for a half-inch metal pin.

The Defense Logistics Agency could end up paying TransDigm $4,361 for the “drive pin” in a July contract that should cost $46, according to a Pentagon review endorsed by the inspector general.

The review found potential excess profits for 98 of 100 parts sampled and concluded the Pentagon may end up paying TransDigm $91 million more in coming years for parts valued at $28 million, with excess profit per part of 95% to the 9,380%, the Defense Department’s inspector general said in an audit labeled “For Official Use Only” and obtained by Bloomberg News.

As the Pentagon weighs whether to recommend legislation to require more disclosure by contractors, the House Committee on Oversight and Reform will review the audit and TransDigm’s pricing policies in a hearing on Wednesday.

Read more: https://www.msn.com/en-us/money/companies/pentagon-contractors-9400percent-profit-on-a-half-inch-metal-pin-is-challenged/ar-AABm2PT?li=BBnbfcN

[walkingman]

1. We desperately need to audit the Pentagon. They are a money pit.

[mahannah]

2. They want more money?

[BootinUp]

3. Pricing policy:

Gouge them till they make us stop.

[mahannah]

4. They want to "contribute" to a border wall?

[sandensea]

5. In the '80s it was $600 toilet seats and $300 hammers

Today's MIC graft, of course, makes those figures sound quaint.

[cate94]

6. The armed forces move personnel every two years.

As a former municipal purchasing agent, I can tell you it takes much longer to learn purchasing laws and protocols. The F35 is a great idea with a limitless budget, it was cost plus! Worst contract type for a purchaser. Some personnel should retain positions for longer terms, without penalty to their careers. The idea of cross training is excellent but they have taken it to an unfortunate extreme.

[DeminPennswoods]

14. Career civilians, not military, handle 99% of DoD spare parts contracting

Spent my federal career managing spare parts. During that time, a part used by the system we supported was similarly cited as having been bought to excess. The truth was the part was being discontinued by the manufacturers, but was still required. DLA worked with us to calculate how many of the part we would need to support our system over its lifetime and bought that amount. Once that was explained, the audit report was withdrawn.

[JudyM]

7. Wonder whatever happened to that procurement whistleblower, Bunnatine Greenhouse, who made headlines

when she was fired...

[OnlinePoker]

10. She won

Bunnatine “Bunny” Greenhouse’s long fight with Uncle Sam is over.

Greenhouse, a federal whistleblower who was demoted after exposing problems with a U.S. government contractor in Iraq, has won an almost $1 million settlement.

The U.S. District Court in Washington on Monday approved awarding Greenhouse $970,000 in full restitution of lost wages, compensatory damages and attorney fees, said her attorney, Michael D. Kohn.

Beyond the particulars of her situation, Greenhouse said her case makes it “loud and clear that federal employees need better laws” to protect them if they engage in whistleblowing.

https://www.washingtonpost.com/local/dc-politics/a-bittersweet-win-for-a-whistleblower/2011/07/26/gIQA8pJUbI_story.html?utm_term=.6145420fded0

[JudyM]

23. Yeah! That's great. Now if only we could just address getting those "better laws" on the books.

Happy for her, at least. She was strong and justified, for the people.

[EarthFirst]

8. This will likely die on someone's desk quietly in the middle of the night...

It’s been this way for decades.

The donor class making obscene profits will ensure this happens...

[YOHABLO]

9. They want to cut medicaid, medicare, the ACA, social security, education..on and on.

Endless fucking war = profits for military contractors.

[SergeStorms]

12. And the GOP...

always makes sure that these contractors are in red states, so any proposed cuts to defense spending automatically start the "jobs in my state" routine. Republicans and defense contractors are joined at the hip.

[mopinko]

11. we need to starve this beast-

[SergeStorms]

13. We tried to levitate the damned place...

in 1967. I think we got it about 3 feet off the ground (or was that my brain dealing with some very fresh peyote buttons?) but we were supposed to get it up to 300 feet, if I'm not mistaken. That was a Jerry Rubin and Abbie Hoffman undertaking (one of many during those times) but a crap-load of people showed up, ready to "levitate" the Pentagon. I think the fatal flaw in the plan was not accounting for the weight of the people in the largest office building in the world, so the "levitation" was somewhat less than successful. It did bring a lot of press attention to a place that didn't receive much attention in those days.

[mopinko]

19. i am just old enough to remember that.

i loved those old hippies.
and now i are one.

[TomVilmer]

24. I often retell this tale to the youngsters

The three feet levitation was the most the Yippies could get official permission to do(!). They gathered all kind of "magicians" and religious freaks, and then circled the Pentagon for three days. Drumming, drumming and drumming. Enough to make anybody inside Pentagon go raving mad .
https://wagingnonviolence.org/2012/10/the-day-they-levitated-the-pentagon/

[DeminPennswoods]

15. The problem with stories like this one

is that most people think DoD can walk into Home Depot or Lowe's and buy hardware off the shelf. Military equipment has different specs and requirements, even if based on commercial designs.

[MissMillie]

17. I can't speak for anyone else

but I am aware that some items have to meet unique specifications.

This particular anecdote seems pretty extreme. And my guess is that this is not at all an isolated incident.

And I don't think the DOD is the only place where this happens.

I think an audit is in order.

[Woodwizard]

18. I was a mechanic in the army

Some of our equipment was pure junk. Unique specifications has more to do with some back room deals I suspect.

[bitterross]

26. Ask yourself if every case of different and unique specs is required

There are certainly items on which the DoD must have unique and different specs. This actual truth has, unfortunately, led to the notion that almost EVERYTHING the DoD needs has unique and different specs. I do not, for a minute, believe that.

I have no doubt there are a huge number of items that are being purchased that can be of standard commercial-grade, or even consumer-grade, that would still meet the real-life needs of the DoD. I have no doubt that instead of looking for those products the purchasing agents are simply buying what is offered through their specialty vendors at exorbitant rates and this is with the approval of their senior management. I suspect if any purchasing agent tried to do better and source things from other sources they'd be given a strong talking to and major dis-incentives to bucking the status quo.

[DeminPennswoods]

30. After reading the article, these items are used on military aircraft

Even a little pin can be a critical item in the aircraft design. Without seeing the actual IG finding, it's hard for me to say what exactly is the situation here, but it does look like this is some sort of omnibus contract, perhaps a BOA (basic ordering agreement) or DVD (direct vendor delivery) with the prime vendor. CICA (competition in contracting act) is the law of the land so DLA would have had to advertize for proposals before awarding the contract. If DLA did a sole source award, they would have had to justify it in writing.

Also, DLA was never set up to manage parts unique to military aircraft. They were built for bulk purchasing of hardware - nuts, bolts, etc. But years ago, the individual services were ordered to transfer many parts that had complex management issues to them. It created a lot of problems and appears if that might still be the case.

[Ghost Dog]

29. You have to take into account the overheads, too.

All that 'management' and creative accountants don't come cheap.

[LanternWaste]

31. What then are the rational reasons this specific unit almost 10,000% over cost?

And how exactly does that answer illustrate the OP as "story like this one..."?

[DeminPennswoods]

33. The agency that manages these parts

is the Defense Logistics Agency (DLA). Their mission is to manage common hardware like nuts, bolts, screws and so on that are ordered in high quantities. Similar to the things you find at Home Depot, Lowe's, corner hardware store. It's been 20-25 ago, DoD decided DLA could also manage more complex and unique items and the services were required to transfer these parts to DLA.

I would bet dollars to donuts that the IG looked at the common hardware with the nomenclature or stock class of pins, averaged their procurement prices and came up with a baseline "should cost" number. Further, I'd bet the IG took no note of the potential unique specs for these items in making their calculation of how much "overpayment" there was. The fact is, if these were easily made items, there'd have been other bidders at lower prices, which, evidently, there weren't.

[Bernardo de La Paz]

16. "review found potential excess profits for 98 of 100 parts sampled". Audit, ya think?

98%.

+1, audit at the very least.

[TheBlackAdder]

20. My father was quoting dock boards for a naval weapons facility--the highest-priced supplier won!

.

In a private one-on-one with the purchasing manager, who my father knew for over a decade. He apologized to my dad.

He said that they are given a certain operational budget, and they had fallen short of it. If they went with the lower-priced bid, they would have next year's budget slashed to current year's levels. So they had to spend all they were allotted, else they would have their budget cut--and that might jam them in a future year, if there were unforeseen expenses.

.

[DFW]

21. I'll bet that at that rate of overcharging

TransDigm would even be willing to pay 100% of their taxes. If they are getting $63 million more than their parts are worth, I should think they'd be happy to give Uncle Sam a third of that in return for immunity from prosecution

[tammywammy]

22. How does this happen under FAR & TINA?

Last edited Wed May 15, 2019, 11:27 AM - Edit history (1)

I work federal contracts, admittedly on labor mostly, but our cost is disclosed as required. The profit is negotiated, but we're mostly fixed fee anyway.

[DeminPennswoods]

25. Because sometimes auditors have an agenda

set by whoever ordered the audit. We got dinged because the auditor just divided the total inventory by the yearly demand rate and that resulted in what looked like thousands of years of supply on hand. The auditor didn't bother to understand that the part was being managed under different rules than governed usual procurement calculations. We pushed back and showed what we did was correct. The audit agency retracted its report, but that didn't get nearly as much publicity as the original conclusion that we had bought 1000's of years of demand and how we supposedly ripped off taxpayers.

[area51]

27. When I saw the heading saying "9,400% in excess profit for a half-inch metal pin",

I thought it was talking about the insane markups in our healthcare system.

[melm00se]

28. For certain things

I can see the profit margins creeping up over time either as the costs to produce drop (but price doesn't) or the government uses some its that are very old and no longer in general use.

My company had to keep making a specific product for 7 years after it went to general end of sale. There were new devices that did the exact same thing and in many ways much better and were cheaper but we had to continue to build and supply these old items despite the lack of component availability.

But a metal pin? Something that any competent machinist can turn out? Don't think so.

[GeorgeGist]

32. Capitalism is rife with ...

Con artists.