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$1,887 Bolt - $2,185 Nut - $14,529 Hub - $11,701 Radio Defense Contractor Spare Parts Ripoffs Make Comeback

November 1, 2000 

 

A new General Accounting Office (GAO) study finds that the cost of 2,993 spare parts purchased in 1998 by the military increased by 1,000 percent or more in just one year. In most cases, defense contractors underestimated the cost of the spare parts then jacked up prices later.

"Under a Congress and an Administration that is all too accommodating to the defense industry, the pocket protector crowd of auditors and investigators has become an endangered species. They are not just red tape, they are the watchful eyes and ears of the American taxpayers," said Danielle Brian, Executive Director, of the Project On Government Oversight (POGO).

Defense officials told the GAO that discrepancies between estimated and actual prices were often the result of a lack of manpower needed to perform a "thorough price scrub," meaning a review of the spare parts provided by the contractor when a weapon system is initially delivered. A related problem is that the military is failing to update price estimates: 1/3 of the prices the GAO examined were three or more years old and 1/5 were ten or more years old.

The GAO study also said that one out of seven spare parts (14%) ordered by the military experienced significant annual price increases of 50 or more percent in 1998. By comparison, in 1995, only one out of 12 spare parts (8%) had such increases. To determine why "extreme" price increases occurred, the GAO examined a sample of 100 spare parts (selected list attached). In 64 out of 100 cases studied, a contractor provided the original price estimate. Some huge price jumps:

  • Bolt (machine) initial estimate $40; actual price $1,887;
  • Hub (body) - initial estimate $35, actual price $14,529;
  • Nut (self-locking) - initial estimate $2.69; actual price $2,185; and
  • Radio (transformer) - initial estimate $683, actual price $11,701.

POGO's 1999 report, Defense Waste & Fraud Camouflaged As Reinventing Government, showed that agencies successful at reining in industry fraud were targeted for budget cutbacks. POGO's report documented a 19% cut in staff at the Defense Contract Audit Agency (DCAA) which "saves almost $10 for each dollar invested"; a 21% cut in the Department of Defense (DOD) Inspector General's office that recovered $466 million in FY 1996-97 from fraud investigations; and a 1/3 staff cut at the GAO, which played a central role in saving $1.7 billion from the troubled F-22 program. "We look forward to a full public airing of spare parts pricing problems by the Subcommittee on Readiness and Management Support," added POGO's Eric Miller.

For more information:

  • The GAO's study, "Price Trends for Defense Logistics Agency's Weapon System Parts"(# GAO-01-22), can be viewed at http://www.gao.gov/new.items/d0122.pdf.
  • Defense Contractor Spare Parts Ripoffs Make Comeback Largest Spare Parts Price Increases

    The following information is excerpted from the Generation Accounting Office (GAO) random sample of the 100 spare parts that had price increases of 1,000 percent or more -- based on listings in Defense Logistics Agency catalogues. Although in the majority of cases studied the 1997 prices were based on contractor estimates, the GAO also found that many of the prices listed were 3 or more years old but had not been updated prior to the 1998 purchase.


    Part Number
    Name of Part
    1997 Unit Price
    (in dollars)
    1998 Unit Price
    (in dollars, number of x
    higher analysis by POGO
    013066164
    Hub, body
    $35.20 $14,528.71
    (413x higher)
    010500591
    Transformer, radio
    $683.28 $11,700.92
    (17x higher)
    013023802
    Tube, vent, fuselage
    $81.25 $10,080.61
    (124x higher)
    010313629
    Tube assembly, metal
    $348.30 $6,989.18
    (20x higher)
    014107601
    Cable assembly
    $11.50 $5,978.18
    (520x higher)
    014060751
    Microcircuit, linear
    $0.11 $5,788.76
    (52,625x higher)
    012939355
    Indicator, sight, liquid
    $28.75 $4,214.70
    (147x higher)
    014261187
    Stiffener, aircraft
    $125.00 $3,416.08
    (27x higher)
    013818680
    Insulation, thermal
    $1.00 $3,390.00
    (3,390x higher)
    014061680
    Bracket, mounting
    $5.00 $3,139.16
    (628x higher)


    For a complete list of the 100 spare parts price increases, see Appendix V of the GAO study, "Price Trends for Defense Logistics Agency's Weapon System Parts"(# GAO-01-22), which can be viewed at http://www.gao.gov/new.items/d0122.pdf

     

  • 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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