The Inspector General (IG) calls into question a U.S. Army unit’s ability to manage one of the military’s most foolproof contract mechanisms — firm-fixed-price deals — in a recently released report that details deals made between the Army Aviation and Missile Life Cycle Management Command (Amcom) and supporting the Corpus Christi Army Depot (CCAD).
“Because of the pricing problems identified in this report that consistently favored Boeing and the fact that Amcom does not have an experienced cost/price analysis group, we consider the use of a firm-fixed-price contract to be too high-risk,” says the unredacted May 3 report, released June 28 by the Project on Government Oversight.
The IG identified $242.8-$277.8 million in excess inventory that could be used to satisfy contract requirements for the Apache and Chinook helicopters. The IG also calculated that Boeing charged the Army $13 million — 131.5% — more than “fair and reasonable prices” for 18 parts, and that Boeing contract prices were $8 million — 51.2% — higher than Defense Logistics Agency (DLA) prices for 1,635 parts.
Boeing, the IG said, owes the Army a refund of $6.3-$10.9 million, as well as an additional $538,688 because it did not meet requirements in a subsequent contract phase.
The report details several incidents of part-price discrepancies. For example, Boeing charged a unit price for straight pins of $71.01 while the DLA’s unit price was about 4 cents.
“In a period of about three years during wartime at the Corpus Christi Army Depot, we contracted for nearly 8,000 individual parts,” Boeing said in a statement. “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. Boeing voluntarily reimbursed the government for the items cited and already improved our process, which will prevent recurrence of these errors.”
But the IG report suggests more than “a handful of errors,” especially when it came to pricing methods. “Boeing was providing cost or pricing data based on unrealistically low quantities such as dealer quotes, commercial catalog prices for quantities of one, outdated historical data for quantities of one and competitive commercial quotes for quantities of one to three that had no relationship to the quantities required or the actual price Boeing negotiated with its subcontractors,” the IG said.
“Boeing also furnished certified cost or pricing data that were not complete, accurate and current at the time of the material certification cutoff date, and routinely negotiated significantly lower prices with its suppliers shortly after negotiating prices with Amcom officials.”