Follow-up on "gouging the taxpayer"

  • 3 June 2019
  • NormanL

A follow-up on an earlier story we wrote regarding alleged price gouging at the Defense Department. According to this report, one company named in a government investigation has agreed to repay the "excess profits" it made from government contracts:

TransDigm Group has agreed to repay the government $16.1 million in excess profits auditors said that the company took in via large markups of aviation parts it sold to the Army and the Defense Logistics Agency, Congressional and Pentagon officials said Friday.

The company wrote an $11.5 million check last week, one of several installments it planned on paying, according to the House Oversight and Reform Committee.

Company officials testified before the committee just a week earlier and expressed reluctance to issuing the refunds, because they were wary of appearing to acknowledge wrongdoing.

“We have private shareholders, we have employees, we have a management, we have commercial customers, and we’re concerned about implying that we’ve done something wrong or something illegal here,” Nicolas Howley, TransDigm’s executive chairman said at the May 15 hearing. “The money is not the issue here.”

Pentagon acquisition officials had accused the firm of gauging taxpayers, partly based on the results of a February audit that calculated the $16.1 million in what were deemed to be excess profits. The Defense Department inspector general arrived at the figure by comparing the company’s actual costs against the prices it charged DoD for a sample of 47 parts, and determined all but one involved excess profits, including 17 with margins of 1,000% or more.

We can understand a reluctance to appear to admit wrongdoing. But we also very much appreciate the refunds. Contrary to the behavior of many in the political class, taxpayer dollars are scarce, and deserve to be spent with great caution and full accountability. The Defense Department, and Congress, would seem to have a lot of work to do on that last count:

In many instances, the [Defense Department] IG attributed the high prices to DoD contracting officers’ inability to get insights into the company’s actual costs, one major factor the government uses in determining whether a price is fair and reasonable. In every instance in which the company was legally allowed to do so, it refused to turn cost data over to DoD contracting officials.

Consequently, aside from pursuing refunds, the IG has urged DoD and Congress to pursue reforms that would give contracting officers the ability to demand at least uncertified pricing data, even for transactions that fall beneath the Truth in Negotiations Act threshold.

Those sound like reforms that should get strong bipartisan support.

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