Boeing Co. raked in millions of dollars from the U.S. Army by marking up spare helicopter parts as much as 177,000 percent, according to a Defense inspector general report first obtained by the Project on Government Oversight.
Boeing, a major defense contractor, overcharged the Army on 18 different parts and collected $23 million dollars instead of the $10 million it should have received in fiscal year 2010. One part, a straight pin that usually valued at $0.04, was sold to the Army for an astronomical $74.01 per unit. A plain stud used on Apache helicopters fetched $3,369.48, even though it usually retails for $190.00 a piece - a 1,673 percent markup.
Though such transactions may appear miniscule compared to the large multi-billion dollar budgets the Pentagon is usually accustomed to, the markups prove to be much more lucrative throughout the life span of a particular defense project where these costs can accumulate, like an Apache helicopter.
“The cost to buy a weapon system out of the factory, such as the AH-64 helicopter, usually is less than the cost to operate and maintain the weapon over its life,” explains the Project on Government Oversight report. “Parts on a weapon have to be replaced at varying intervals and, similar to how the human body replaces most cells in the body in less than a decade, a major weapon system with a long-enough life span may eventually be largely rebuilt with new spare parts.”
The Pentagon inspector general who filed the report recommended that the Defense Department seek a refund from Boeing for the lost tax-payer dollars, but the Army declined to do so. Instead, it cited previous price-fixed contracts which it entered with Boeing that do not require adjusting part prices based on what they may be selling for after the fact.
Though certainly not the first to take advantage of the government procurement process, Boeing may have struck a chord in a particularly sensitive fiscal environment as debt-ceiling talks heat up on the Hill and lawmakers struggle to rein in spending.
Igor Bobic
Igor Bobic is the assistant editor of Talking Points Memo, helping oversee the site's coverage of politics and policy in Washington. While originally from Bosnia and Herzegovina, Igor feels best at home on the beaches of Southern California. He can be reached at igor@talkingpointsmemo.com.