Boeing overcharged the Air Force for simple spare parts on C-17 aircraft by $1 million over a four-year period, according to the Pentagon.
The defense giant marked up the cost of soap dispensers by 8,000%, putting taxpayers on the hook for such items that cost 80 times more than market value.
While the cost that Boeing charged per dispenser was redacted from a new audit released this week, in total, the Air Force overpaid for the dispensers by $149,072 from 2018 to 2022, according to Pentagon Inspector General Robert Storch.
“The Air Force needs to establish and implement more effective internal controls to help prevent overpaying for spare parts for the remainder of this contract, which continues through 2031,” said Storch.
“Significant overpayments for spare parts may reduce the number of spare parts that Boeing can purchase on the contract, potentially reducing C-17 readiness worldwide.”
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An anonymous tip about the exorbitant soap dispenser prices prompted the inspector general’s audit into spare parts.
Boeing has a 10-year contract with the Air Force that allows it to purchase the spare parts needed for C-17s and the Air Force reimburses Boeing for the spare parts.
The IG’s review of 46 spare parts revealed that only nine, or 20%, were purchased by the Air Force at “fair and reasonable” prices, totaling $20.3 million.
The IG found that the Air Force did not pay “fair and reasonable” prices for about 26% of the spare parts reviewed, about $4.3 million worth of equipment. For another 54% of the spare parts, valued at $22 million, the IG was not able to determine whether the Air Force paid fair prices: the service branch did not maintain historical data on pricing and they were unable to obtain supplier quotes for similar products.
The IG found the Air Force failed to validate the accuracy of data in contract negotiations for spare parts, review price increases during contract execution, and review invoices to determine whether prices were “fair and reasonable” before paying them.
Boeing said in a statement it was reviewing the report but cautioned that it appeared to compare prices for the parts that met aircraft standards to “basic commercial items” that wouldn’t meet the qualifications for military aircraft.
“We are reviewing the report, which appears to be based on an inapt comparison of the prices paid for parts that meet aircraft and contract specifications and designs versus basic commercial items that would not be qualified or approved for use on the C-17. We will continue to work with the OIG and the U.S. Air Force to provide a detailed written response to the report in the coming days.”
An Air Force spokesperson said they would implement new controls on payments.
“The Air Force is working with the Defense Contract Management Agency to develop controls to ensure the accuracy of payments. We are also updating contracts to include additional subcontractor information sharing.”
Around 220 C-17s are in use by the Air Force, Air National Guard and the Air Force Reserve Command.
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The Air Force calls the Boeing Globemaster C-17s “the most flexible cargo aircraft” in its fleet, capable of carrying people and cargo across a variety of distances. It’s become the primary aircraft used for evacuation and humanitarian missions.
The Pentagon’s sprawling budget broke $900 billion last year, making overcharges by defense contractors a constant headache for internal watchdogs.
Earlier this month, Raytheon agreed to pay $1 billion in a settlement with the Department of Justice (DOJ) for defrauding the Defense Department and paying bribes to a government official in Qatar to acquire business in the country.
The company was accused of inflating its costs by $111 million on missile systems and operation of a radar surveillance system it sold to the Pentagon. Raytheon allegedly lied about the cost of building three Patriot missile batteries, with the Army agreeing to a $619 million contract.
