(C) Common Dreams
This story was originally published by Common Dreams and is unaltered.
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Lawmakers Work to Prevent Military Price Gouging [1]
['Julia Gledhill']
Date: 2023-01
As a result, defense contractors have overcharged the Pentagon for decades. In 1998, the Defense Department inspector general found one company charging the Pentagon $85.02 for electrical wiring insulation previously sold to the Air Force for $8.51. The markup meant the Pentagon paid an estimated $12,870 more than necessary for wire insulation sleeves during the span of that contract alone, a striking example of government waste that grabbed POGO’s attention in the early 2000s. Since then, we’ve reported on a number of inspector general audits that revealed significant overcharging by mega-contractors like Boeing and Lockheed Martin as well as lesser-known companies like TransDigm.
These outsized profits are made possible by several problems, not least of which is how small the defense industry is. Companies have the power to set prices because there are few alternative suppliers, and the Pentagon lacks the tools it needs to check price reasonableness.
Mandatory Disclosure Threshold
Congress has incrementally raised the mandatory disclosure threshold since the 1980s, the amount the government must spend before companies have to provide the Pentagon with certified cost and pricing information, from $100,000 in 1994 to $2 million today. This means that far too often, the Pentagon can’t determine whether the prices it’s agreeing to are on par with the market because it doesn’t receive certified data from companies with contracts valued under $2 million.
It’s clear that the mandatory reporting threshold is far too high. For one striking example of the impact of increasing the threshold, we can look at spare parts supplier TransDigm, whose contracts regularly failed to meet the applicable threshold at the time. Because it slipped under the government’s radar, TransDigm was able to legally charge as much as 3,850% above the market price for at least one part, ultimately profiteering to the tune of about $21 million in under three years, according to the Pentagon inspector general.
Mandatory Refunds
To make matters worse, the Pentagon has little recourse to demand refunds from companies when they do price gouge. For example, an earlier DOD OIG report found that TransDigm received $16.1 million in excess profits from 2015 to 2017. Facing mounting public pressure, the company finally agreed to refund the Pentagon $16 million in May 2019. But it has since refused to refund the $20.8 million in excess profits it received from 2017 to 2019, despite congressional demands to do so.
Previous versions of one key contracting law, the Truth in Negotiations Act (TINA), contained stronger requirements for companies to issue mandatory refunds to correct overpricing. Today, the law that remains of TINA rarely triggers mandatory refunds from profiteering companies. Furthermore, it does nothing to suspend contract eligibility for companies that price gouge or refuse to give the Pentagon the information it needs to negotiate contracts fairly.
Commercial Designations
As POGO has noted previously, a high disclosure threshold and the lack of mandatory refunds aren’t the only problems. Companies like TransDigm could still avoid reporting certified data to the Pentagon at a lower disclosure threshold if the products or services they sell were considered “commercial.” The logic is that products sold to the general public are already competitively priced — at least in theory.
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[1] Url:
https://www.pogo.org/analysis/2022/08/lawmakers-work-to-prevent-military-price-gouging
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