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Boeing Pocketed Millions by Overcharging Army, IG Report Finds

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Although Boeing frequently negotiated lower prices from its suppliers shortly after signing contracts with the Army, it failed to pass on any of those savings to the Army.

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Boeing Co. (BA) overcharged the U.S. Army by about $13 million for Apache and Chinook helicopter parts, according to a Pentagon inspector general report obtained by the Project on Government Oversight.

The report also found that the Army could fulfill more than $200 million worth of current and future Boeing orders with its own inventory, but that there are no Pentagon policies compelling the use of inventory rather than making outside purchases.

Boeing, the second largest Pentagon contractor in fiscal year 2010, overcharged the Corpus Christi Army Depot for 18 different parts, including $3,369.48 for a plain stud available from Army inventory for $190, a 1,673 percent markup over the Army price. A roller assembly available for $7.71 from another Army inventory was billed at $1,626.49 by the Chicago-based aerospace company.

It's not the first time a branch of the armed forces has paid an outside contractor for millions of dollars' worth of parts already in its inventory, the report indicates, pointing to a 2010 audit of the Air Force which found $70 million worth of inventory went unused as the Air Force bought the same parts from outside contractors.

While Pentagon policy encourages exhausting internal inventory before turning to an outside contractor, the practice is not forbidden.

The report also indicates that Boeing frequently negotiated lower prices from its suppliers shortly after signing contracts with the Army, but failed to pass on any of those savings to the Army.

The report recommends that the Army request millions in refunds from Boeing, but the Army disagreed with some of those findings. It argued that charges of certain products being defective had not been substantiated and that the firm-fixed-price contracts it entered into with Boeing did not require an adjustment of prices when Boeing was able to negotiate significantly lower prices with its suppliers. In response to the latter, the report suggested that the Army could either enter into different types of contracts in the future or perform annual reviews to determine whether parts had been obtained by outside contractors at lower prices than initially negotiated.

In a statement, Boeing said the overcharges cited in the report represent a fraction of its overall business with the Army. "Boeing voluntarily reimbursed the government for the items cited and already improved our process which will prevent reoccurrence of these errors," the company said.

FAST FACT: Boeing received $22,239,786,802 in Pentagon contracts in fiscal 2009, according to Government Executive.

Editor's Note: This article by Ben Wieder was originally published on The Center for Public Integrity. Reprinted by permission.
No positions in stocks mentioned.

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