Armed Forces News

The Department of Defense Inspector General has called out TransDigm Group, Inc., for overcharging the government for spare parts. In May 15 testimony before the House Oversight and Reform Committee, Principal Deputy Inspector General Glenn A. Fine and Assistant Inspector General for Audit Theresa S. Hull told the panel that an audit showed TransDigm had earned profits greater than 15 percent on 46 of the 47 spare parts the IG reviewed.

“The profits for these parts ranged from 17 percent to [more than] 4,400 percent,” Fine and Hull told the panel. They also stated that the company repulsed efforts by Defense Department contracting officers to get them to share cost data. Additionally, they noted that the present legal framework makes it hard for the Pentagon to compel companies to comply with such requests.

The problem with TransDigm is endemic of a larger issue regarding sole-source pricing for spare parts, they told the panel. Lack of cost-control data is a recurring problem for contracting officers, making it hard for them to conduct reliable cost analyses, they said.

The issue emerged after a provision in the 2018 defense-spending bill raised the certified cost data threshold to $2 million, up from $750,000 – a move intended to streamline the acquisition process. Rogue companies, such as TransDigm, used the provision to hide overcharges, Fine and Hull said. The situation becomes particularly more difficult when the company is a sole-source provider of the parts in question, as TransDigm was in this instance.
Regulations also make it difficult for contracting officers to request uncertified cost data, further exacerbating the issue, the two told the panel.
Fine and Hull cited other instances that highlighted the problematic system that allows miscreants to overcharge the government and hide the fact that they do so, dating as far back as 1998.

TransDigm’s issues are particularly noteworthy, they said, with issues surfacing in the first Defense Department audit, which was conducted in 2006.
“Using cost analysis, we calculated that the DLA [Defense Logistics Agency] had paid approximately $5.3 million more than the fair and reasonable price for 77 parts” at that time, Fine and Hull said. Subsequent audits unveiled relatively comparable results.

Even though the Defense Department did react to prior issues raised by the IG, such steps have not been sufficient, they said.
“Twenty years later, we are still identifying the same issues,” they told the panel.