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Inspector general says Boeing overcharged Pentagon

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By Tony Capaccio
Bloomberg News
Published:
WASHINGTON -- Four times in the past five years, the Pentagon's inspector general has found that the Boeing Co. collected excessive or unjustified payments on U.S. defense contracts.
In the latest of four audits since 2008, the watchdog office said the Chicago-based company charged the U.S. Army for new helicopter parts while installing used ones.
"Boeing significantly overstated estimates" of new components needed for CH-47F Chinook helicopters and "primarily installed used parts instead" under a $4.4 billion contract awarded in 2008, according to the report, labeled "For Official Use Only" and obtained by Bloomberg News.
While used parts were allowed in some circumstances, the July 16 report found that the company overcharged the U.S. Army by as much as $16.6 million by exaggerating how many new ones were required while installing refurbished equipment salvaged from old aircraft. The report also faults defense agencies and military services for lax negotiations and contract management.
"The bottom line is that using reworked parts rather than new parts increased Boeing's profit," Bridget Serchak, a spokeswoman for the inspector general, said of the latest findings. The Army paid Boeing for parts "that were proposed but never installed" and "is paying for additional parts that they do not need and may not use," Serchak said in an emailed statement.
Boeing is the No. 2 federal contractor after Lockheed Martin Corp., with more than $30 billion of prime government contracts awarded in fiscal 2012, according to a Bloomberg Government ranking.
While Boeing "recognizes the important work that the Department of Defense inspector general performs," the company "disagrees with the IG's conclusions," Damien Mills, a company spokesman, said in an emailed statement.
"We believe we were fully compliant with all government contract policies and guidance applicable to the first CH-47F multiyear contract, and we provided evidence of that to the IG throughout this audit," Mills said.
The four audits since 2008, which involved different contracts and circumstances, all found that the Army and Pentagon need to bolster their ability to go toe-to-toe with Boeing in complex negotiations, said Henry Kleinknecht, the inspector general's former director for pricing and logistics, who managed the audits of Boeing parts until he retired last year.
"Unfortunately, the Army does not have a cost/price analysis group, much less an experienced one," Kleinknecht said in an email. Government and military contracting officials don't have "the technical expertise in a lot of these complex areas to go in and figure out what the problems are," he said.
Sen. Tom Carper, D-Del., who heads the Senate Homeland Security and Governmental Affairs Committee, said he plans a hearing this year to examine the Pentagon's "spare-parts problems" and "other opportunities to curb wasteful spending."
The largest overcharge described in the July report was as much as $2.6 million for 142 Chinook engine transmission housings that the inspector general found weren't needed. Instead of giving the Army the unneeded parts, Boeing was allowed to keep them for other jobs "even though the Army paid for" the items, the audit found.
While the excessive charges cited by the inspector general amount to rounding errors for Boeing, the July report follows a series of government audits challenging amounts paid by the Pentagon under various contracts.
A 2008 audit said Boeing sought $1.9 billion in unjustified payments on military contracts under a formula designed to compensate contractors for rising costs. After negotiations, the amount was cut to $272 million, report said.
In June, the inspector general said the Defense Logistics Agency paid Boeing $13.7 million more than it should have for spare parts, including $2,286 apiece for an aluminum "bearing sleeve" that should have cost $10.
A May 2011 audit found about $13 million of overcharges on $23 million of orders from a Texas army depot. That report said Boeing charged $644.75 for a plastic motor gear used on Chinook helicopters, which another Pentagon agency purchased for $12.51.
Story tags » Military aviationU.S. Military

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