The Pentagon could wind up overpaying more than $100 million for spare aircraft parts because a contracting agent didn't check that he was getting the right prices, an investigative report found in May.
The Defense Logistics Agency overpaid $8.5 million on brakes, wheels and other spare parts for aircraft ranging from the CH-47 Chinook helicopter to the F-16 fighter. And if the mistakes aren't corrected, the Defense Department could overpay by $106 million during the next five years, according to the DoD Inspector General, the department's internal independent watchdog.
The DLA, headquartered at Fort Belvoir, Virginia, is responsible for supplying more than 85 percent of all spare parts for the military, including aircraft components for the Air Force, Navy, Army, and Marine Corps.
But while negotiating, "the contracting officer did not obtain fair and reasonable prices for sole-source commercial spare parts," the IG's report said.
Instead, the contracting agent relied on overinflated prices from previous years, didn't look at what commercially available parts cost, and accepted company price estimates that the IG said were "excessive."
Part of the problem, investigators said, was that the company, Meggitt Aircraft Braking Systems, with U.S. offices in Akron, Ohio, "historically refused to provide cost data to the DoD," making it more difficult for contracting agents to know if the company's high prices were justified.
The fact that MABS continuously refused to provide cost data to the Pentagon means it should have been "ineligible for contract award" unless specifically approved by a top DLA official, the IG said.
Meggitt said they "strongly disagree" with the IG's conclusions and that the IG didn't consider all the relevant information.
"We sell these parts to our customers at prices that appropriately incorporate all relevant cost factors, including our substantial upfront investment in the development of very unique and proprietary designs," spokeswoman Fiona Greig said in a statement.
The director of DLA acquisition, Matthew Beebe, said in response to the report that the agency has added new cost and price training for contracting agents, and has developed tools that will help guide agents and allow them to compare prices more easily.
Officials told Air Force Times that "DLA continues to institute a number of process improvements to ensure that our acquisition workforce has the tools and policies in place to obtain fair and reasonable prices for our sole-source contracts."
The agency also said it "stands behind the decision made by the contracting officer," and that he "performed his job adequately" -- a statement investigators disagreed with.
Instead of negotiating new prices, the contracting agent "relied on previous overinflated contract prices," the IG said.
Under the negotiated 2013 contract, DLA would need to pay $293.26 for a single pin, investigators said — a more than 250 percent increase over the price in 2012.
The fact that the 2013 prices were overinflated is "an indication that prices on previous contracts with the MABS companies were not fair and reasonable," the IG said.
In addition, the DLA agent increased the quantities of several parts the Pentagon was buying, hoping to get a price break for such large orders.
"Although the contracting officer attempted to negotiate quantity range prices that aligned with DLA's expectation of manufacturing efficiencies, the contracting officer ultimately accepted the higher prices proposed by the MABS companies," the IG said.
The report added that "the contracting officer … stated that the MABS companies refused to lower their prices."
Many of the statements and explanations from MABS are redacted in the report. But investigators said that without access to the company's cost data, the contracting officer should have either compared prices with similar parts that were commercially available, or thrown a red flag up the chain of command that the company wasn't cooperating.
The IG's office said it was able to uncover some information, and noted that "sales data we obtained from the MABS companies did not support the prices for 51 of 54 parts reviewed."
DLA said they are not currently pursuing measures to recoup some of the overpayments or prevent more from going out in the future. The IG's office never shared the price data it obtained, DLA officials said, leaving the agency with no information to contradict the prices already negotiated.
But investigators said they are concerned that the agency's hands may be tied in the future due to language the contracting officer put into the contract.
The MABS company made a request — though what exactly the request was is redacted in the report — and in response, the contracting officer inserted new language into the contract: "Cost data of any kind is not required under this contract."
That could make it difficult for DLA to get any pricing information in the future, the IG said. And without the cost data, DLA "will have no basis to request a voluntary refund," investigators said.
