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Outraged by the Return of $76 Screws? Here's What Can Be Done About It

April 8, 1998 

 

Grotesque overcharging by defense contractors - 57¢ screws billed at $76; $47 bells for $714; and a $6.1 million contract for parts worth $1.6 million - has yet again been revealed, this time by the Department of Defense Inspector General (DOD IG). Just when we thought we might have moved beyond the $640 toilet seat and $7,622 coffee pot debacles of the '80s - we find clear evidence that outrageous overpricing is alive and thriving in the DOD.

PROBLEM #1: Acquisition policy changes made by the Federal Acquisition Streamlining Act of 1994, later revised by the Federal Acquisition Reform Act, are the core of current pricing problems in the Defense Department. Obviously, the acquisition reforms that were supposed to "fix" problems of overpricing and waste aren't working.

Although these laws were enacted to make it easier for the government to buy "commercial" items, they went too far by defining "commercial" too broadly. The original intent was to allow the government to buy "off-the-shelf" items whose prices could be trusted because they were set by a free market. The plan backfired and now, the overly broad definition places purchases in the "commercial" category that are either:

A) Simple items like screws, but are items that do not have prices set by a true commercial free market, for example because the government buys them as sole- source items from just one company, or;

B) Items that are not even commercial items to begin with - such as the C-130J military transport aircraft.

PROBLEM #2: These laws allow contractors to sell "commercial" items without having to provide or certify cost and price data to prove that their prices are fair. If the items were truly free market, commercial items - this policy would be fine, but, current cases of overpricing prove that the items are not fairly priced. Our government ends up trying to negotiate prices in these contracts, a sure sign that it is not buying "off the shelf" commercial items. The DOD has slipped further into a purchasing black hole - they're not buying "off the shelf" items AND the contractor doesn't have to provide certified cost information to prove that their prices are fair.

BREAKING THE CYCLE

Tighten the definition of "commercial" so that it only applies to items that do have a true free market, setting prices based on a broad amount of supply and demand. Restore the definition of commercial as actual sale of specific items to the general public. The reforms banned use of contractor cost and pricing data for commercial items.

However, they defined a commercial item as one not necessarily sold to the public, but merely "offered for sale." Similarly, the item can be merely "of a type" sold to the public, rather than a product that actually is sold to the public.

Restore the definition of competitive bidding to be at least two bidders. The reforms stopped the requirement to provide certified cost and pricing data when items are bought based on competitive bidding, but competitive bidding was defined as one bid, as long as others could have bid. This is just one more step away from a true free market.

Restore the definition of commercial to mean a large free market - one that has a substantial level of sales. The Federal Acquisition Reform Act watered down standards defining a substantial level of commercial sales, and if there is not a large market with numerous buyers and sellers, the prices cannot be relied upon for large government purchases.

Restore the use of certified cost or pricing data where prices are in fact not set by a true free market. The Federal Acquisition Reform Act occasionally allowed use of cost or pricing data, but not certified cost or pricing data. Uncertified contractor cost or pricing data is that which "need not be current, accurate, and complete," and is therefore likely to be useless for determining whether prices charged to the government are fair or not.

With such loose definitions of competition, commercial items, and free markets - overpricing problems are greatly compounded by the increasing lack of competition in the defense industry.

Unless the original intent of buying true free market items is restored, the spate of defense corporate mergers will add yet another cost to taxpayers and the government - overcharging made easier by regulations and not corrected by a healthy level of competition.

 


Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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