Its national securing, so don’t question
The Pentagon Overpays for Almost Everything—Even Prescription Drugs
Britain’s Farnborough Air Show wrapped up last week after seven ear-splitting days. To impress the excited kids and jaded dealers in attendance, the U.S. sent an F-8, an F-15, and a pair of F-16s. But the much anticipated F-35 Lightning II Joint Strike Fighter was a no-show. After a runway fire grounded the fleet earlier this month, the Department of Defense suspended negotiations to purchase the next batch of the planes.
The troubled fighter is only the latest in a long and growing number of cases where the DOD has bought poorly designed and massively overpriced equipment for the nation’s armed forces. Across the military, the average major Pentagon acquisition comes in at 40 percent over budget, according to a recent report from the Government Accountability Office. In spite of the Pentagon’s well-documented history of profligacy, the Congress continues to enlarge its responsibilities. The DOD’s mandate now includes wide-ranging scientific and medical research and international infrastructure projects, diffusing the focus on its core mission—like buying planes that don’t set themselves afire on the runway. That’s a disservice to America’s military and a burden to the country’s taxpayers.
The F-35′s grounding is the latest setback in the development of an aircraft that’s already cost $400 billion. A recent GAO report noted that cost estimates for operating and supporting the F-35 fleet are now more than $1 trillion, “which DOD officials have deemed unaffordable.” The report went on: “Reliability is lower than expected for two variants” of the F-35, and the program has “limited additional opportunities to improve reliability.”
Story: The Crazy Way the Government Buys Billions of Dollars of Drugs
Meanwhile, Pentagon procurement is also running amok elsewhere: in the same week as the F-35 engine fire, the DOD’s inspector general issued a report on excess payments such as a payment to Bell Helicopters for gears at $8,124 each—more than 18 times the expected cost of $445.
The USS Gerald Ford (still in dry dock) is already more than $2 billion over budget, and the Navy has slashed orders for the Littoral Combat Ship, which has proved much more expensive to run than predicted and is “not expected to be survivable in a hostile combat environment” according to the DOD’s director of operational testing and evaluation.
If the Pentagon is so bad at providing good weapons to soldiers at a reasonable price, you might not expect it to be any better at buying anything else—and the evidence suggests it isn’t. Take the comparatively straightforward purchasing of off-the-shelf drugs, which the Pentagon does for active-duty and retired personnel and their dependents. Another recent GAOffice report compared net prices across a sample of 78 common and expensive brand-name and generic drugs. Compared to Medicaid, the DOD paid on average 60 percent more. One of the most reviled government agencies gets the best deal; the most loved, the worst.
Story: Counting Drugs and Prostitution in GDP Makes a Mockery of Budget Rules
And yet Congress keeps expanding Pentagon’s portfolio. The department has spent more than $3.6 billion on breast cancer research. It funds science on alcohol and substance abuse, Alzheimer’s disease, and lung, ovarian, and prostate cancer. Overseas, we’ve asked it to play a lead role in the reconstruction of Haiti (spending half a billion dollars in the six months after the earthquake), to support anti-Malaria programs in Ethiopia, to vaccinate goats in Uganda, to rehabilitate dams in Afghanistan, and to build mobile phone networks in Iraq.
Whether it is any more successful in these efforts than it is buying military equipment is suspect. The implementation record of these programs is patchy at best. During its tenure, the Special Investigator General for Iraq Reconstruction pursued U.S. military, civilians, and contractors involved in corruption, fraud, or other abuse in the country. By the time the office closed in 2013, its search had resulted in 90 convictions, 75 of which involved U.S. military staff, DOD employees, or contractors.
We shouldn’t disregard the bravery and dedication of the armed forces because of the efficiency and effectiveness of the bureaucracy that oversees them. The DOD is not working. And asking people to fight under it is not unlike asking soldiers to fight the wrong war. The legislators that have charge over the institution have two choices: They can pretend everything is all right and put troops unnecessarily in danger in exploding planes and the like, or they can focus the Pentagon on its primary responsibilities and demand better. Those willing to risk their lives in defense of the country surely deserve the second approach.
— source businessweek.com
Pentagon Found to Pay Textron Unit $8,124 for a $445 Gear
The Pentagon paid Textron Inc. (TXT)’s Bell Helicopter unit $8,123.50 each for gears that should have cost $445.06, according to a report by the Defense Department’s inspector general.
The bevel gears that were marked up 18-fold were part of $9 million in excess payments by taxpayers cited by the watchdog office.
This is the latest case in which the inspector general said Pentagon agencies allowed contractors to overcharge for parts. For decades, the Defense Department has been the subject of periodic ridicule from lawmakers, and even late-night comedians, after reports of inflated prices for items such as a coffee pot and a toilet seat.
In the Bell case, the inspector general recommended that the Defense Logistics Agency seek to recoup the excess money and analyze prices to ensure taxpayers aren’t further overcharged. Otherwise, the excess payments may increase by an additional $2.6 million under Bell’s noncompetitive contract, the report found.
“The contracting officer did not sufficiently determine whether prices were fair and reasonable,” according to the July 3 report, signed by Jacqueline Wicecarver, assistant inspector general for acquisition. The report, obtained by Bloomberg News, was labeled “For Official Use Only.”
Bell Helicopter “does not agree with the findings or recommendations,” Andy Woodward, a spokesman for the unit of Providence, Rhode Island-based Textron, said in a statement.
‘Fully Complied’
“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,” he said.
The alleged overcharges were incurred on Bell’s 2012 sole-source, $128 million contract to support Navy and Marine Corps H-1 and Army OH-58 Kiowa helicopters. The contract is in place until February 2017.
“Prices were not sufficiently determined fair and reasonable because the contracting officer did not perform an adequate analysis when procuring sole-source” parts, accepting the company’s pricing “in a noncompetitive environment,” the inspector general’s report found.
The agency “potentially overpaid Bell Helicopter Textron about $9 million out of $13.4 million on 33 of 35 sole-source spare parts” reviewed, Wicecarver wrote.
Auditors for the inspector general calculated the potential overpayments based on cost data that Bell Helicopter provided under an administrative subpoena, according to the report.
Cost Data
In response to the inspector general’s recommendation that the Defense Logistic Agency pursue options including a voluntary refund from Bell, Matthew Beebe, the agency’s director of acquisition, told auditors that “Bell has consistently refused to provide cost data for commercial parts” it sells the Pentagon.
Agency officials do “not believe they have the ability to obtain cost data,” the report said.
Michelle McCaskill, a spokeswoman for the agency, said today in a e-mailed statement that it’s not going to press Bell Helicopter for a refund “because DLA procured the items under current commercial contracting procedures and pricing methodology.”
“The prices on this contract are fair and reasonable in accordance with current federal and defense acquisition regulations as well as commercial item pricing guidance,” she said.
Boeing Parts
In June 2013, the Defense Logistics Agency asked Boeing Co. (BA), based on another audit, to refund $13.7 million for what it called excessive prices for spare parts, including a $10 aluminum sleeve for which the Pentagon paid $2,286.
Chicago-based Boeing this year agreed to provide the agency with $3.2 million in parts to settle the case.
The Bell audit found that the Defense Department paid the company $2,355.85 for a round inner cap — an “inflated unit price that should have been $297.08.” In another case “Bell proposed and DLA accepted a unit price of $492.17” for a $51.67 pin.
Bell Helicopter also charged the agency $295.57 apiece for one-inch bushings the inspector general determined should have cost an average $25.72 each.
The Defense Logistics Agency’s Beebe said in his written response to the report that the agency followed “current commercial contracting procedures and pricing methodology” and paid 35 percent less than the company charged commercial customers.
The deal with Bell also provided for additional price cuts if commercial customers were charged less for the same item, Beebe said.
— source bloomberg.com