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U.S. Army Defends Boeing on Overcharges

Jul. 1, 2011 - 03:45AM   |  
By MICHAEL HOFFMAN   |   Comments
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U.S. Army officials prefer to focus on the decreased repair turnaround times at a maintenance depot where Pentagon investigators found Boeing overcharged the Army $13 million on spare helicopter parts, not on the $10 roller assemblies that cost the Army more than $1,600.

The Army's Aviation and Missile Life Cycle Management Command bought the 18 parts highlighted in a recent Defense Department Inspector General's report, which made up the $13 million in overcharges. Soldiers and civilians used the parts at Corpus Christi Army Depot, Texas.

The DoD Inspector General's report highlighted extreme overcharges in comparing Boeing prices to those that would have been charged by the Defense Logistics Agency (DLA). In one case, Boeing charged the Army $71 for a straight pin that would have cost the service 4 cents from DLA. Boeing also charged $381.78 for a bolt retainer; DLA charges $6.77.

In all, the Army paid $23 million for the 18 sets of parts that should have cost the service $10 million, a 131 percent price hike, according to the full IG report, which was first released by the Project on Government Oversight.

However, the 18 parts highlighted in the report make up a small sliver of the 8,000 parts included in Boeing's contract with the Army, according to Dan O'Boyle, an Army spokesman. The price increase paid by the Army for the entirety of the contract is 17 percent, which was acceptable to service officials in order to cut down on back orders and keep up with increased maintenance needs for the wars in Iraq and Afghanistan, he said.

"It was recognized that using a material integrator would drive an estimated average material price increase of about 25 percent, based on lower parts quantities and immediate parts availability, but would be offset by the increase in parts availability and increased readiness," O'Boyle said in a statement.

Army officials credited Boeing with reducing back-ordered parts from 292 in 2004 down to 22, which led to an overall increase of readiness rates by 10 percent. Upon further inspection, O'Boyle said, the Army found that about 2,000 parts included in the contract are priced less than Army and DLA inventory prices.

The Corpus Christi Army Depot is a maintenance center used mainly for Army helicopters. Boeing builds the Army's AH-64 Apache attack helicopter and the CH-47 Chinook twin-rotor utility helicopter.

A previous Army audit of the initial contract could have caught the overcharges of the 18 parts, but the Army audit only covered "80 percent of the total dollars associated with the bill of material for this contract because of the magnitude of the parts involved," O'Boyle said.

A similar audit by the Defense Department Inspector General is taking place concerning purchases made for the same depot from Sikorsky Aircraft, according to the report.

The Defense Contract Audit Agency also is doing a full audit of actual costs expended on the contract, whereas the Defense Department IG "only sampled a portion of the contractor's expenditures," O'Boyle said in a statement.

"Given the wartime environment for Army aviation, more rotary aircraft today and flying six times above the peacetime flying hours, the critical support to these platforms could not have been achieved without this agreement," O'Boyle said in a statement.

After the Defense Department IG released its report, Boeing issued the Army a voluntary refund of $1.6 million for five types of parts, an Army official said.

"The handful of errors cited by the IG's initial report represents an extremely small part of our outstanding support to our U.S. Army customer," said Bob Algarotti, a Boeing spokesman. "Boeing voluntarily reimbursed the government for the items cited and already improved our process, which will prevent reoccurrence of these errors."

In the same Defense Department IG inspection that cited the 18 overcharged parts, inspectors found the Army had not used $339.7 million of inventory before buying the same parts from Boeing. The Army disputes that figure, saying $48.1 million is "actually excess at this point," O'Boyle said.

In response, the Army will use the Enterprise Resource Planning system to ensure that inventory is more visible. Army Materiel Command has "implemented a policy requiring the use of all on-hand inventory before the purchase of any additional material on performance-based contracts," O'Boyle said.

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