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Hearing Of the House Committee On Armed Services - "Can The Department Of Defense Protect Taxpayers When It Pays Its Contractors"


Location: Washington, DC

"Welcome to today's hearing entitled ‘Can the Department of Defense Protect Taxpayers When It Pays Its Contractors?' It continues the panel's series of hearings which focus on a particular hypothesis about where value is lost in defense acquisition.

"Today's hypothesis is pretty straightforward: DOD loses value in acquisition when it doesn't properly mitigate the risk that it will overpay its contractors. The risk comes in two stages, first, that DOD will enter into risky contract types when they are not necessary; second, that DOD's process for auditing and correctly paying bills submitted under riskier contracts will breakdown.

"The House Armed Services Committee led the way in 2007 in establishing the Panel on Contracting Integrity within DOD to try and steer the Department away from more vulnerable contract types whenever possible. When using such contracts does prove necessary, however, DOD must be able to rely on the Defense Contract Audit Agency to help contracting officers ensure that contractors are paid only what they deserve.

"The size and complexity of defense procurement means that relatively simple billing errors can lead to massive overpayments by DOD. The DOD IG discovered in 2008 that the use of an improper cost index as an inflation adjustment on the multiyear procurement contracts for the C-17, F/A-18 E&F, and Apache Longbow led to over $500 million in duplicate charges.

"In 2009, GAO identified unallowable costs charged under the EELV program potentially totaling as much as $1 billion that resulted from the improper inclusion of ‘commercial' costs in a pool of costs charged to DOD. There are more potential examples in this area than could possibly be listed in our allotted time, but suffice it to say that the simple matter of paying DOD's bills correctly can be anything but simple.

"Today's hearing is important not just because these problems have occurred, but because there is substantial disagreement between DOD and GAO over how best to mitigate risk in reimbursing its contractors. I anticipate that we will hear a vigorous debate today about how DOD can best organize its audit and contract management functions to both protect the taxpayer and serve the warfighter. And I should emphasize that this committee, as always, is highly attuned to the mission of serving the warfighter. In mitigating the risks of overpayment, we must not impede the timely delivery of critical war materiel.

"With the help of our witnesses today, we will try and find the right balance of these priorities. Finding this balance is at the core of the mandate that Chairman Skelton and then Ranking Member McHugh gave the panel when it was established in March of this year.

"I now turn to my colleague from Texas, a CPA, for his opening remarks."

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