Recommendations to Prevent Overcharging by Sole-Source Contractors

For the past two days, we have been discussing the TransDigm case where the DoD contractor significantly overcharged the Government for spare parts. Parts 1 and 2 can be accessed here and here, respectively.

To recap, the House Committee on Oversight and Reform requested the Defense Department OIG (Office of Inspector General) to look into concerns brought to their attention concerning potential overcharging by TransDigm. The OIG pulled a sample of contracts and determined that 46 of 47 contracts were overpriced by $16 million. Ultimately, TransDigm paid back the $16 million but now, the House Committee has requested the OIG to perform a comprehensive review of all TransDigm contracts with the DoD.

The OIG pointed out a number of regulations that contributed to the overcharging including the fact that contracting officers had no recourse when contractors refuse to provide requested cost or pricing data needed to determine price reasonableness. The OIG also made a number of recommendations to avoid future occurrences including the following:

1. Examine the US Code, FAR, DFARS, and other guidance to determine changes needed in the acquisition process of parts produced or provided from a sole-source to ensure that contracting officers obtain uncertified cost data when requested and that the DoD receives full and fair value for its expenditures.
2. Immediately revise the policy on access to records to expand reporting requirements to all contractor denial of cost data for acquisitions of parts produced by one manufacturer, as well as for other sole-source acquisitions, regardless of whether the requirement is urgent. Disseminate the new guidance and update the DFARS as appropriate.
3. Establish a team of functional experts to analyze data reported. The team should assess parts and contractors deemed to be at high risk for unreasonable pricing and identify trends and perform price analysis and cost analysis of high-risk parts to identify lower cost alternatives or fair and reasonable pricing for future procurements.

DoD's response was fairly non-committal. DoD essentially stated that it would look into the matter but didn't address specifics of when and how the recommendations would be implemented. Therefore, from the OIG's perspective, the recommendations remain unresolved.