Monday, June 10, 2019

Congress Calls for Comprehensive Audit of Contractor's Sales to Defense Department

Background. Last February, the Defense Department's Office of Inspector General (OIG) issued a report on its audit of purchases from TransDigm Group. The audit was conducted in response to several letters from Congress to determine whether purchases were made at fair and reasonable prices.

The OIG reviewed a small sample of 47 parts totaling $29.7 million purchased by DoD from TransDigm between January 2015 and January 2017. Specifically, the OIG set out to determine how contracting officers established fair and reasonable prices for the required parts.

As a result of the audit, the OIG concluded that TransDigm had overcharged the Government by $16.1 million beyond a reasonable profit. That works out to a figure greater than 100 percent profit.
How does a contracting officer determine that prices were fair and reasonable when at those exorbitant rates? There were a number of factors that left contracting officers hamstrung in the process, the most prevalent being denial of access to cost or pricing data. The Defense Department needed critical parts and TransDigm pretty much gave the Defense Department a 'take it or leave it' offer. In fact, of the 47 contracts audited by the OIG, 46 were overpriced and TransDigm denied the Government access to cost or pricing data. The only one of the 47 contracts not overpriced was one in which TransDigm was required to furnish cost or pricing data because the value exceeded the threshold for cost or pricing data requirement. The OIG report has many more details concerning problems that contracting officers faced.

New Development. Late last month (May 24th), the House Committee on Oversight and Reform announced that TransDigm had agreed to refund the $16 million in overcharges.
Today's decision by TransDigm to refund millions of dollars in blatant overcharges would not have happened without the hearing in the Oversight Committee last week. This is solid, bread-and-butter oversight that helps our troops and the American taxpayers. We saved more money today for th American people than our Committee's entire budget for the year. ... While this is a good first step, we must do even more in the future to prevent unscrupulous contractors from holding us hostage through abusive monopoly contracts.
TransDigm's problems did not end with the $16 million repayment. The House Committee on Oversight and Reform has now requested the OIG to perform a comprehensive audit of all TransDigm's contracts from January 2015. These contracts totaled $782 million and if overstated by the same percentage that the OIG's found in its initial sample, would return an additional $350 million to the Treasury.

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