DoD Scales Back on Sole Source Purchase Justifications from One Particular Supplier

Last week, we posted a three-part series discussing the TransDigm case. If you recall, the DoD Office of Inspector General (OIG) conducted an audit of purchases from the company (and its subsidiaries) and found that in a sample of  47 contracts, 46 of them were overpriced. The OIG calculated the Government was overcharged by about $16 million, even after allowing for a 15 percent profit. TransDigm paid that money back (with significant pressure from Congress). Now, Congress wants the OIG to look at the entire universe of contracts awarded to TransDigm to determine the full extent of overcharging. If you missed any of the previous postings, you can access them here.

• Part 1 - TransDigm pays back $16 million in overcharges
• Part 2 - How overcharging was allowed to occur
• Part 3 - OIG recommendations to prevent future overcharges

Last Friday, the Defense Department told its contracting officers that it can no longer buy products from TransDigm (or its 150 or so subsidiaries) unless it receives uncertified cost or pricing data to support prices proposed by TransDigm. DoD now understands the problem and its significance to fair and reasonable pricing:

FAR ... provides that adequate price competition exists if two or more responsible offerors, competing independently, submit priced offers that satisfy the Government's expressed requirement. Even where there is only one manufacturer of an item, an acquisition complies with this definition as long as offerors each establish their proposed price independently. However, the definition of adequate price competition does not address the fact that a sole manufacturer (such as TransDigm) participating in a competition can effectively control the competition by its ability to establish the material pricing for all other offerors. In these situations, the Department does not consider such rigged competitions to be adequate price competition, based on independently submitted offers.

Therefore ... contracting officers are directed to require the submission of uncertified cost or pricing data to support prices proposed by TransDigm and its subsidiaries.

Contracting officers have requested cost or pricing data in that past but TransDigm has refused. Given the critical nature of the parts being bought, TransDigm just might have the upper hand.

The DoD directive with its listing of 150 TransDigm subsidiaries can be found here.

RELATED: Article appearing in Forbes Magazine: Congress is Accepting Price Gouging by Defense Contractors. Alleges that the Transdigm case is only the tip of the iceberg.