A Pentagon contractor should repay the government nearly $21 million that the company overcharged for military spare parts, the Defense Department's auditor said.
The Defense Logistics Agency should seek a refund from Cleveland-based TransDigm Group of “at least $20.8 million in excess profit on 150 contracts,” the Pentagon inspector general said in a report made public this week.
The allegedly excess profit comes on top of $16 million the company repaid the government in 2019 after admitting to similar overcharges on defense contracts.
The audit report said the company’s pattern is to acquire smaller outfits that can sell specialized military parts without competition — and then hike up the prices of those parts.
The auditor also noted that Congress has not passed legislation that might improve oversight of such contracts.
The report was requested by the House Oversight and Reform Committee.
“The Inspector General found that TransDigm has engaged in rampant price gouging on mission-critical aircraft parts,” Carolyn B. Maloney, the New York Democrat who chairs the panel, said in a statement. “TransDigm must immediately return the $20.8 million it overcharged American taxpayers. If it fails to do so, the Committee will take further action.”
Nearly all of TransDigm’s contracts with the Pentagon fall below the dollar amount that triggers a requirement for the department to certify that prices are reasonable, the IG report said.
The inspector general said that the fiscal 2021 National Defense Authorization Act did not include provisions requested by the Pentagon to address the problem. The IG said to expect new attempts to secure statutory changes in fiscal 2023. It is not clear if the pending fiscal 2022 NDAA contains any related provisions.
“The first proposal sought to ensure that the DOD has appropriate authority and flexibility to make commercial item determinations and is able to obtain the necessary cost or pricing data to negotiate fair and reasonable prices,” the audit report said. “The second proposal sought to include a paragraph amending an existing statute within the United States Code that requires the submission of uncertified cost data from offerors if the pricing data submitted is not sufficient to determine a fair and reasonable price. Neither proposal was included in the FY 2021 National Defense Authorization Act."
And Ro Khanna, a California Democrat who serves on the House Oversight and Reform and Armed Services panels, said this year’s NDAA was also a “missed opportunity” to do something about Pentagon oversight of spare-parts pricing.
“Congress needs to work on legislative fixes to close the loopholes being exploited by TransDigm and other defense contractors to pad their profits at the expense of the public," Khanna said.
Likewise, Stephen F. Lynch, D-Mass., chairman of the House Oversight and Reform National Security Subcommittee, said the Pentagon needs new authority to “ensure that prices charged for sole-source contracts are fair and reasonable.”
TransDigm, for its part, issued a statement Tuesday objecting to the audit’s findings.
“TransDigm disagrees with many of the implications contained in the report, and objects to the use of arbitrary standards and analysis which render many areas of the report inaccurate and misleading,” the company said.