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The U.S. Department of Defense Inspector General recently released an audit highlighting excessive pricing by Boeing on spare parts for the C-17 Globemaster III. The report revealed an 8,000% markup on items like lavatory soap dispensers, costing the Air Force $149,072.
What You Need to Know: The U.S. Department of Defense Inspector General recently released an audit highlighting excessive pricing by Boeing on spare parts for the C-17 Globemaster III. The report revealed an 8,000% markup on items like lavatory soap dispensers, costing the Air Force $149,072.
-It’s estimated that the Air Force has been overcharged millions for various parts, while officials struggle to confirm “fair and reasonable” prices on other spares.
-The audit calls for stricter cost oversight, while Boeing defends its pricing, claiming comparisons to basic commercial items are “inapt.” These revelations follow recent legal troubles for Boeing, raising concerns over military contracting practices.
Boeing Charged Air Force 8,000% Markup for C-17 Soap Dispensers, Report Finds
Much has been made about government “waste” in recent years, but this week aerospace giant Boeing was accused of overcharging the United States Air Force for spare parts for the C-17 Globemaster III military transport. According to a report from the Department of Defense Office of Inspector General (DoD OIG) released on Tuesday, the Air Force has been gouged on spares.
The “Audit of C-17 Spare Parts Pricing” report was initiated in response to a Pentagon Hotline allegation, and it assessed whether the air service was being charged “fair and reasonable prices under the performance-based logistics (PBL) contracts).”
One item in particular has been called out – a soap dispenser for the C-17’s lavatory. The Pentagon watchdog found that the price had been marked up by 7,943%. The report found that the Air Force had overpaid nearly $1 million for a dozen spare parts, including $149,072 for the lavatory soap dispensers.
“The Air Force needs to establish and implement more effective internal controls to help prevent overpaying for spare parts for the remainder of this contract, which continues through 2031,” said Inspector General Robert P Storch. “Significant overpayments for spare parts may reduce the number of spare parts that Boeing can purchase on the contract, potentially reducing C-17 readiness worldwide.”
The C-17 Globemaster III first entered service in January 1995. A total of 220 are operated by the U.S. Air Force, Air National Guard, and Air Force Reserve Command.
This is not the first time that cost overruns have been found on U.S. military cargo aircraft. According to Defense One, the air service paid $10,000 for a toilet seat cover for the Lockheed C-5 Galaxy.
Reasonable Prices
In total, the DoD OIG’s report stated that the service “did not consistently pay reasonable prices” for the Globemaster III transport, and it was determined that the Air Force was overcharged for 26% of spare parts. The value of those components was placed at $4.3 million. In addition, the watchdog was still unable to determine if the service paid “fair and reasonable prices” for more than half (54%) of spares. The total value for those was stated to be $22 million.
“The Air Force did not maintain historical cost data, and the Defense Contract Management Agency Item Group was unable to obtain supplier quotes or identify commercially similar parts,” the DoD IG stated.
The watchdog also acknowledged, “The DoD did not require the contracting officer to verify the accuracy of the bill of materials before negotiation or to review invoices for allowable, allocable, and reasonable costs before payment.”
DoD OIG has called for the Commander of the Air Force Life Cycle Management Center to instruct the C-17 contracting officer to conduct an audit, which could “determine whether price increases of 25% or above occurred, and obtain justification of the price increases from Boeing.”
A Boeing spokesperson told CBS News Boeing that the aerospace firm would review the allegations.
“We are reviewing the report, which appears to be based on an inapt comparison of the prices paid for parts that meet aircraft and contract specifications and designs versus basic commercial items that would not be qualified or approved for use on the C-17,” the Boeing spokesperson sought to explain in a statement.
More Bad News For Boeing
It has not been a good year for Boeing, and in July, the aerospace firm announced it would plead guilty to fraud related to the approval of its 737 Max. Two of the aircraft crashed, killing a total of 346 people in accidents in Indonesia and Ethiopia in 2018 and 2019.
Because Boeing agreed to plead guilty to a felony, the aerospace firm would normally be excluded from bidding on military contracts. However, the Pentagon has the leeway to grant exceptions, The Associated Press reported.
This isn’t the first time Boeing has been in this situation.
AP noted that in 2006, the Air Force cited “compelling national interest,” which enabled Boeing to keep competing for government contracts “even after the company admitted charges that included using stolen information to win a space-launch contract and paying a $615 million fine.”
Boeing’s latest troubles aren’t likely to win favor with the Air Force. The aircraft maker had also faced a protracted contract negotiation with the U.S. Navy over the cost of the Block III F/A-18 Super Hornets.
