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Letter to Ashton B. Carter, Deputy Secretary of Defense of U.S. Department of Defense

Letter

By:
Date:
Location: Washington, DC

Today, Sen. Tom Carper (D-Del.), Chairman of the Subcommittee on Federal Financial Management, expressed concern regarding another report that details Department of Defense (DOD) overpayments for spare and, at times, duplicate parts costing millions of dollars. The DOD Office of the Inspector General (OIG) report, which focused on the Army Aviation and Missile Life Cycle Management Command (AMCOM) contract with Sikorsky Aircraft Corporation, found that the AMCOM paid millions of dollars in overpayments and also purchased from Sikorsky parts when the DOD warehouses already had $47.5 million to $58.7 million of the same parts. Often those items already in the warehouse were purchased previously at prices lower than what Sikorsky charged. Some purchases duplicated items for which the military actually had overstocked the parts in military warehouses, including one part for which the military has a 37-year supply.

In one example, the DOD OIG found that the military warehouse operated by Defense Logistics Agency (DLA) had sufficient inventory to satisfy annual AMCOM contract requirements for 3,267 items, and the Sikorsky contract price for those items was $7.6 million, or 85.1 percent, higher than the DLA price. Those parts were purchased from Sikorsky anyway.

"This latest Department of Defense Inspector of the Office General report details even more troubling and disappointing examples of wasteful spending," said Sen. Carper. "We simply cannot afford this type of waste and ineffectiveness. The Department of Defense's inability to properly manage its inventory and its financial records leaves it vulnerable to waste and fraud, as we've seen with this most recent example and far too many others. This type of sloppy record-keeping is unacceptable. I know the Department of Defense can do better than this, and I am eager to hear from the Department about the progress it has made in improving its accounting and inventory systems. Fixing these expensive and wasteful inventory and parts supply problems follows the overall approach that Secretary Leon Panetta had said earlier this year. If the Department of Defense is to become more efficient and eliminate waste, then implementing the inspector general recommendations makes sense."

In response to DOD's ongoing problem of overpaying for spare parts and inventory, Sen. Carper, along with Sens. Scott Brown (R-Mass.) and Tom Coburn (R-Okla.), sent a letter to Deputy Secretary of Defense Ashton B. Carter. In the letter, the Senators ask that Deputy Secretary Carter provide the Department's plans and timelines to address the recommendations made by the DOD OIG in the report.

"Given the serious financial challenges posed by our massive federal debt and deficit, all aspects of federal spending, including the DOD, are facing the prospect of substantial reductions and changes," wrote the Senators. "We believe that we must look in every nook and cranny of the federal government to make sure that we're getting the most bang for our buck. We need to get better results for less money in almost everything we do. With millions, if not billions of dollars at stake, eliminating wasteful spending practices is a critical step."

In its report, the DOD OIG makes several recommendations to curb the overpayments for spare parts, such as requiring our military depots and contractors to check for a lower cost parts that could be available through internal Department sources, such as the Defense Logistics Agency.

To view a summary of the report (DODIG-2012-004), please click here.

A copy of the letter to Deputy Secretary Carter is below:

November 3, 2011

The Honorable Ashton B. Carter, PhD
Deputy Secretary of Defense
U.S. Department of Defense
1000 Defense Pentagon
Washington, DC 20301

Dear Dr. Carter:

We are writing to express our concerns over recent reports that the Department of Defense (DOD) is overpaying for parts and inventory.

The DOD Office of Inspector General (OIG) has issued a series of audits reporting on contracting practices that allow for gross overpayment for parts (Excess Inventory and Contract Pricing Problems Jeopardize the Army Contract With Boeing to Support the Corpus Christi Army Depot, May 3, 2011, and Pricing and Escalation Issues Weaken the Effectiveness of the Army Contract With Sikorsky to Support the Corpus Christi Army Depot, Sept. 8, 2011). The Inspector General audits describe how the Army has overpaid millions of dollars for spare parts. Even more noteworthy and disappointing, in many cases the overpriced parts bought from suppliers were already available from military warehouses operated by the Defense Logistics Agency.

The Inspector General findings included:

* For an $8.00 helicopter door part, for example, the DOD paid $284.00.

* The Army paid five times too much for a $1,500 rotor part that turned out to already have been in stock in military warehouses

* DOD did not effectively use $339.7 million of existing inventory before procuring the same parts from The Boeing Corporation.

* The DOD OIG reported that Sikorsky Aircraft Corporation charged the Army $11.8 million, or 51 percent more than was "fair and reasonable," for 28 parts reviewed. Many of these parts were already held in inventory by the Department.

* DOD overpaid The Boeing Corporation by $13 million, or 131.5 percent more than fair and reasonable prices for 18 parts. Much of this money was spent on parts that were already stocked by the Department.

Given the serious financial challenges posed by our massive federal debt and deficit, all aspects of federal spending, including the DOD, are facing the prospect of substantial reductions and changes. We believe that we must look in every nook and cranny of the federal government to make sure that we're getting the most bang for our buck. We need to get better results for less money in almost everything we do. With millions, if not billions of dollars at stake, eliminating wasteful spending practices is a critical step.

The DOD OIG has laid out a number of recommendations to address the problem of overpriced spare parts. For example, it seems to me that requiring our military depots and contractors to check for a lower cost parts that could be available through internal Department sources, such as the Defense Logistics Agency, as the OIG recommended, is a common sense and cost-effective step. We respectfully ask that you respond by December 1st with the Department's plans and timelines to address the recommendations made by the DOD OIG to curb these troubling instances of overpaying contractors for spare parts.

We look forward to working with you during the months ahead on this important issue.

Sincerely,

Thomas R. Carper
Chair
Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security

Scott Brown
Ranking Member
Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security

Tom Coburn
Ranking Member
Permanent Subcommittee on Investigations


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