Senators urge Pentagon to investigate price gouging by military contractors after 60 Minutes report

[BumRushDaShow]

Source: CBS News

Updated on: May 26, 2023 / 6:27 PM / CBS News

A bipartisan group of U.S. senators asked the Department of Defense to launch an investigation into longstanding price gouging by defense contractors Wednesday.

In a letter to Secretary of Defense Lloyd Austin, Sens. Bernie Sanders (I-VT), Elizabeth Warren (D-MA), Chuck Grassley (R-IA), Mike Braun (R-IN) and Ron Wyden (D-OR) said they were prompted by a six-month investigation by 60 Minutes that uncovered extensive price gouging. Experts told 60 Minutes that military contractors overcharge the Pentagon on almost everything the DOD buys each year.

"Lockheed Martin, Boeing, Raytheon, and TransDigm are among the offenders, dramatically overcharging the Department and U.S. taxpayers while reaping enormous profits, seeing their stock prices soar, and handing out massive executive compensation packages," the senators wrote. "These companies have abused the trust government has placed in them, exploiting their position as sole suppliers for certain items to increase prices far above inflation or any reasonable profit margin."

In March, Deputy Defense Secretary Kathleen Hicks announced the largest Pentagon budget ever: $842 billion. Almost half will go to defense contractors. "Dollars that are wasted on overpriced weapons or spare parts cannot be spent to counter adversaries or support service members," the senators wrote.

Read more: https://www.cbsnews.com/news/senators-urge-pentagon-investigate-price-gouging-military-contractors-60-minutes-report/

[bucolic_frolic]

1. Yes but have ey moved beyond $2000 toilet seats and $400 hammers?

Weren't those the price gouging items of the Reagan era? And also a 60 Minutes theme?

[peppertree]

2. Cost-plus, as the Bushies liked to refer to it

Cost - plus enough to buy an oceanfront mansion.

(and you know, they don't come cheap)

[mjvpi]

20. I wish my profit were guaranteed even if projects were late and over budget.

When dealing with new technologies, I guess some of that is understandable, but I wish we would enjoy that level of flexibility with budgets that deal with helping people, not killing people. I am not saying that all money spent on defense is wasted, but when looking at the fiscal attitude towards the defense budget, our governmental priorities are out of whack.

[peppertree]

22. Screwing the taxpayer is all part of the fun for them

The feeling they can get away with things that others would be jailed for many times over.

[niyad]

3. $600 ashtrays and coffee urns, $100 hex wrenches (69 cents at ACE), etc. We

have known this for decades. I even remember reading a protesting explanation for why this is legitimate-- all the requirements, the standards to be met, the paperwork, etc., ad nauseum.

[peppertree]

23. And for the troops? Slimy water and maggot-infested food - and at 10x mark-up or more

It's all part of the fun for them.

[Axelrods_Typewriter]

30. Don't forget the moldy on-base housing that's falling down.

[peppertree]

37. +1

Someone had to pay for the oceanfront mansion.

[Axelrods_Typewriter]

31. At least the USAF quit buying $1300 coffee cups.

Yes, they really were/are $1300.

[The Wizard]

4. Defense contractors

know the whereabouts of offshore money laundries, and those connected to them.

[Alexander Of Assyria]

10. The Pentagon is a Holy Cow! How dare its massive budget be questioned! Are you a communist

to ask??

Unaudited half the American budget…it’s crazy how much Americans love the Guns, politics irrelevant.

Time to talk military grift and waste and overall cost to Americans for…what?? To feel safe? Need a trillion a year to…feel safe…from who??

[Hugh_Lebowski]

15. I believe the term is 'sacred cow' ;)

[mjvpi]

18. You're both right. Holy Cow, regarding Pentagon spending, is what I say....

…….as my palm slams my forehead.

[Crowman2009]

29. Funny how the ones whining about a government takeover are the same ones willing to give...

...the pentagon billions of dollars. Especially 20+ years ago during the "W" administration when they loved the government military overreach and wanted us all to bow down to the flag.

[Alexander Of Assyria]

33. China is now the great hope of the Pentagon.. to keep the cash cow happy...russia has been put

out to pasture…old, weak enemy cow…wont do for a trillion a year unquestioned taxpayer dollars.

[Crowman2009]

36. The crazy part is that the weapons we send to Ukraine are pretty much 80's technology.

Do we really need to spent a boatload on brand new weaponry, as opposed to buying more of the old cheaper stuff that still works?

[Aristus]

38. When it comes to weapons systems like the M1 Abrams-series tanks that we're sending to Ukraine,

the bare-bones tank is a product of 1970's technology (the Abrams went into service in 1980), but it has regularly and consistently been updated every decade or so with more advanced technology to keep up with the times. I remember several times while I was stationed on Fort Knox, a number of Pentagon technicians coming in to update the software in all of the high-tech "black boxes" scattered all over the interiors of our tanks.

We're sending the Ukrainians tanks bearing 1990's technology, but we're keeping for our own Armed Forces the very latest variants of the Abrams.

Anyway, the Russian tanks the Ukrainians are up against are mostly products of 1970's and 1980's technology. And as those get blown up, or captured by intrepid Ukrainian farmers, Russia is having to deploy tanks from the 1960's and even earlier.

[Alexander Of Assyria]

41. Electronics improvements important...but a tank is a tank...iron dome...old iron good as new.

[The Wizard]

42. 19 guys armed with boxcutters

brought the world's most powerful military to its knees. We're getting hosed.

[Lonestarblue]

5. If I recall correctly, some years ago an attempt was made to audit the Pentagon spending.

It was so confusing and tangled that the audit had to be abandoned. There’s no excuse for such profligate spending, and the Pentagon needs to be put on a fiscal diet instead of consistently getting more money to waste every year.

[Delmette2.0]

6. This!!

Only deliberate mismanagement could create that mess.

[paleotn]

9. See #8 below

[Alexander Of Assyria]

11. And defence dept. investigating is like cops investigating each other. Results in the can.

[paleotn]

8. You're refering to the black budget. Covert spending on secret projects.

The vast, vast majority of DoD's budget falls under the auspices of DCAA (Defense Contract Audit Agency), DCMA (Defense Contract Management Agency) and is regularly audited. As one who's worked in DoD contracting for decades, those guys will rightfully "get in your shorts" and live there. There are errors and exceptions, but those are not the rule.

[mjvpi]

19. I'm sure that the budget audit is brutal if you are in the crosshairs but,....

…. the Department of Defense, as a whole, continues to fail audits. Audit the Pentagon Act of 2021 was the last stab. Again, as a whole, the Pentagon as never been successfully audited. The Google sources that I just looked up seemed like legit news.

[Alexander Of Assyria]

35. Audit abandoned?? That's the propaganda from the war friendly media...which to me

signals huge huge problems…an Army of Auditors is all that is required…and it won’t cost a trillion a year.

[oldsoftie]

7. "consolidation" was pushed for so long that now we dont have competition.

And we need more suppliers not less. Its also a security issue. We have ONE plant that makes the old fashioned black powder used as starter in artillery shells. If that place was to burn down we'd be screwed. We must diversify suppliers
And we need to break up these monopolies.

[paleotn]

12. Failures at DCAA and DCMA as well.

Defense Contract Audit Agency and Defense Contract Management Agency. Government agencies tasked with stopping this and both are deep in the details of just about every DoD proposal of any size. In my two decades in the industry, I only saw one instance in a firm fixed price contract that was a bit dodgy. Not terrible, but the contractor could have done it for less and still remained profitable. DCMA knew about it, DCAA audited it, and for whatever reason passed it along.

Much of the problem stems from the lack of competition in very technical systems. It's not a business you can start in your garage with your buddies due to the incredible technical complexities of modern weapon systems. The level of capital and expertise needed makes entry difficult even for established companies that lack the expertise. That reduces competition. But then again, you want that collective expertise. It isn't cheap and only a handful of companies can afford it and it creates things like the Patriot missile, HMARS and the B-2.

PAC-3 (latest missiles for the Patriot system) intercepts and kills ballistic missiles by actually hitting the inbound warhead vs exploding in relatively close proximity. Equivalent to hitting a bullet with a bullet. A herculean task most people can't even comprehend. And according to the Ukrainians, PAC-3 works damn well. But there are only a handful of companies in America, or globally, who could ever pull that off and apparently charge accordingly and DCMA lets it go. The competitive issue as a huge conundrum that isn't going to get solved anytime soon.

[BumRushDaShow]

13. One of my cousins used to work for Raytheon

way back when, during the updates for and deployment of the PAC-2 Patriot system. I remember how excited he was about it then.

[Hotler]

14. They've been doing that shit for decades. That Washington's cash cow. I'd bet every member

in the House/ Senate has a shit pot full of defense stock in their portfolio. A lot of people get elected to office, go to Washington with only spare change and leave a millionaire. The monies they get from gouging us is used for campaign donations and lobbyist, that money doesn't come out of their profits. They use our money against us.

Nothing to see her folks, move along please.

[Wonder Why]

16. As an engineer and officer in the military who did RDT&E

(Research, Development, Test & Engineering) , there are even more issues. I always looked for the best deal for us from contractors.

Some contractors low bid items that they claim meet the specs but in the long run, they turn out to be more expensive because they cut corners. When a multi-million dollar (in the 70s) project depends on a $250K procurement, it cost more to start over with someone else than it costs to live with the junk that soon will be obsolete as technology moves ahead. And suing the contractors (or even gathering the evidence to justify denying them future contracts takes forever and uses a lot of resources and they know that.

A conundrum occurs when you are betting $50B on your selection of a company. Company A charges too much but delivers a reliable product. Company B bids less but has never done that kind of thing before and you can end up in a hole. Which do you choose?

Sometimes, government expectations are overly specified. We had a contractor (low bidder) for a small business to create a good dirt road to transport a missile at White Sands Missile Range. The government specified 3 weeks to do it but every bidder said it was impossible to do it in less than six - and they were right. So the government specified a penalty of $20K for failure to meet the date. The winning bidder told me he jut added the $20K into his bid price (and was still lowest), did the job in the six weeks he said, and paid the government the penalty out of the extra he added to his bid. Worse, when the missile was brought in, the driver failed to notice the new road (designed to be perfectly straight and level per transport requirements) and took the rutted, twisty one we had to use each day. The government was afraid we'd ruin the good road before the missile was brought in.

Fixed price contract on advanced design military things are not necessarily a good idea. Contractors not knowing if the proposed design will even work, have to include that possibility in their price. So they hedge their bets because they know that when the project is finished, the future will have better components, newer, faster computers, and overall better technology so designing something that in ten years will be obsolete when it is done. They make their money in "change orders" when the government says "The Russians just came out with a faster plane so our new one needs to be modified to do better" or "replacing all the computers with the new smaller ones that can do more is needed to extend the life of the item". Ka-ching! The price just went way up.

Best would probably be to separate design from purchase buy buying the design i.e. the government owns the process and can give any company the rights to build it but companies want to keep that proprietary so the design costs would be much higher but the production costs much lower as that can be competitive.

But do remember the successes. Projects that more than paid back their cost. Look at the B-52. Still the workhorse of the Air Force in spite of the fact that the last plane was built in the early 60s - sixty years ago! That's value.

[BumRushDaShow]

17. But for every B-52 "success"

there are the Osprey V-22 & F-35 chronic issues.

I will say I haven't really heard of too many issues with the B-2 (at least until recently).

[Wonder Why]

27. Agreed. But when you are trying to design based on technology that doesn't yet

exist, there will always be problems. But that doesn't justify political double dealing (you're going to cancel what in my district?), outright overcharging, lack of honesty about problems, close relationships (Eisenhower's warning about the military-industrial complex), etc, etc.

But it's not limited to DoD. Witness how much NASA's paying Boeing for failing to finish its Starliner vs the success of the SpaceX at a lower development cost than Starliner AND lower cost per trip.

[BumRushDaShow]

28. True re: NASA

I think because companies like Boeing (and Lockheed Martin, etc) were "parts" people for space-faring vehicles and never really built a "standalone" complete package of a rocket and payload/crew capsule (although they normally build jets). I don't know if Boeing ever had as many tests (and failures from those many tests over the years) as SpaceX.

[JudyM]

21. Should be an independent investigation with Bunnatine Greenhouse on the team.

https://www.whistleblowers.org/whistleblowers/bunnatine-greenhouse/

[Midnight Writer]

24. In 2001, Defense Secretary Rumsfeld said that two trillion in Defense funds were unaccounted for.

Then, a few days later, Sept. 11 happened, and buried all concerns about Defense spending.

[Ilsa]

25. Wait a minute, isn't this from a 1970s 60 Minutes segment?

No, really.

[discntnt_irny_srcsm]

26. It's a complicated and expensive issue that will be expensive to control.

There's an element of Heisenberg Uncertainty to it.

[ExWhoDoesntCare]

32. I knew someone with the B-1 testing personnel at Edwards

He was on the team looking for FWA (Fraud Waste Abuse) in the program back in the 80s. One of his "finds" for gouging was a set of titanium screws to bolt the ancient ARC-190 SSB radio chassis into place. What Rockwell wanted to charge: $27,000. What the USAF ended up paying for a set of normal bolts? $3.50. It was "only" a markup of 514285%. Simple "rounding error," donchaknow?

He said he caught all of the egregious ones like that he could, but remember that people like him were going through every single part used to construct that airplane, down to each kind of screw, washer, nut, bolt--you name it, they were looking at it. There's so much that some of them...how would you know that the .15 screw would cost .02 at the local hardware store? Anybody realize how many screws go into keeping an airplane together?

Enough to claw back that $27K set they "lost out on," that's how many.

[Alexander Of Assyria]

34. The Pentagon, the greatest Grifters of them all, not even lose...why the budget free pass???

Too big to audit??? Nonsense. Love of The Gun is pervasive, ridiculous…trillion a year.

Do folks even know about this, cause the corporate media has the Pentagon budget under and cone of silence…not even a whisper in this so called debt crisis, half the crisis is the Pentagon!!!

Where is the Democratic Party on this??? It’s puzzling how both sides do it.

Debt of over 30 Trillion…half consumed by Guns.

[TexasBushwhacker]

39. It's my understanding that some of the excess cost

is because the military requires every single item, including hand tools and spare parts, have a serial number.

[Brother Buzz]

40. 'Give 'em Hell, Harry!' Truman, please pick up the nearest white courtesy telephone.

How Harry Truman Rose to Fame Curbing War Profiteers

Right when the U.S. needed supplies for World War II, military contractors started overcharging. An obscure senator from Missouri challenged them.

-snip-

Flash back to the months right after Pearl Harbor, when the nation was getting ready for war. It’s literally a matter of life and death, but some corporations and contractors are overcharging for desperately needed equipment.

A little-known Democratic senator from Missouri rides the public anger, consequently emerging as a national leader. “Their greed knows no limit,” said Harry Truman in February 1942 in talking about military contractors accused of gouging the government at such a critical time.

The public agreed. A Gallup Poll noted that 69 percent of Americans wanted the government to exert controls on the profits earned by contractors during the war.

-snip-

By April 1942, Truman and others in Congress managed to craft a piece of legislation called the Renegotiation Act, soon signed by President Franklin D. Roosevelt, to rein in the contractors. The practice of renegotiation allowed government committees to oversee contracts and take back payments deemed excessive.

-more-

https://daily.jstor.org/how-harry-truman-rose-to-fame-curbing-war-profiteers/