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Thu May 16, 2019, 05:44 PM

A Pentagon Contractor's 9,400% Profit on a Half-Inch Metal Pin Is Challenged

http://fortune.com/2019/05/14/transdigm-pentagon-costs/

By TONY CAPACCIO and BLOOMBERG Updated: May 15, 2019 11:01 AM ET | Originally published: May 14, 2019


The Pentagon is weighing legislation that would give contracting officers the power to demand back-up data on spare parts costs after its inspector general said TransDigm Group Inc. could be paid about 9,400% in excess profit for a half-inch metal pin.The Defense Logistics Agency could end up paying TransDigm $4,361 for the “drive pin” in a July contract that should cost $46, according to a Pentagon review endorsed by the inspector general.

The review found potential excess profits for 98 of 100 parts sampled and concluded the Pentagon may end up paying TransDigm $91 million more in coming years for parts valued at $28 million, with excess profit per part of 95% to the 9,380%, the Defense Department’s inspector general said in an audit labeled “For Official Use Only” and obtained by Bloomberg News.

As the Pentagon weighs whether to recommend legislation to require more disclosure by contractors, the House Committee on Oversight and Reform will review the audit and TransDigm’s pricing policies in a hearing on Wednesday.

The inspector general’s report “exposes how a company entrusted with supporting our military men and women took advantage of American taxpayers by overcharging the government more than $16 million” in parts sales sold between 2015 and 2017, Oversight Chairman Elijah Cummings said in a statement. The hearing will “investigate whether these pricing issues are more widespread, and demand answers,” he said.

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