Login
iscover
The US Department of Defense needs to launch an investigation into “abusive overcharging” by defence contractors, according to a request from five US senators.
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
In a letter to US Secretary of Defense Lloyd J. Austin III, the five senators said an inquiry is urgently needed after alleged defence contractor price gouging was uncovered in a six-month investigation by CBS News in May this year.
Senators Bernie Sanders, Elizabeth Warren, Chuck Grassley, Mike Braun and Ron Wyden are concerned that military contractors overcharge the Pentagon on almost everything the DOD buys each year.
“The report uncovered repeated instances of defense contractors overcharging the Department of Defense to secure excess profits of 40–50 per cent, costing the US taxpayers hundreds of millions of dollars,” the group said.
“DOD’s fixed price contracts would often provide for private profits of 12–15 per cent. Pentagon analysts found overcharges that boosted total profits to nearly 40 per cent and sometimes as high as 4,000 per cent.”
The group called out defence companies including Lockheed Martin, Boeing, Raytheon, and TransDigm as offenders who dramatically overcharge the department and US taxpayers to reap enormous profits.
“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,” the group said.
“This recent investigation only underlines longstanding concerns around the department’s inability to pass an audit, accurately track its finances, or mitigate against fraud risk in the hundreds of billions of dollars in contracts it awards every year.”
The CBS investigation drew on testimony from retired auditors Julie Smith and Mark Owen, contracting officer Kathryn Foresman, as well as former Raytheon chief contract negotiator and US DOD contract negotiator Shay Assad.
Assad alleged that the US DOD accountability system is broken, and Pentagon analysts had found total profits for defence contractors approached 40 per cent.
As an example, he said, shoulder-fired Stinger missile originally cost $25,000 in 1991, however, sole supplier Raytheon now charges more than $400,000 to replace each missile sent to Ukraine.
He also alleged the cost of a crucial valve made by TransDigm for US Apache attack helicopters had skyrocketed from under US$747 to US$12,000. The valves had also been withheld from battlefield aircraft in Iraq until payment was made, he added.
“If you’re happy with companies gouging you and just looking you right in the eye and say, ‘I’m gonna keep gouging you because I know you don’t have the guts to do anything about it.’ Then I guess we should just keep doing what we’re doing,” Assad said.
It’s a timely reminder as the US Department of Defense requests its largest budget in history, $842 billion in funding for the financial year 2024.
The DOD has a less than stellar record for fiscal transparency as the only US government agency to never pass a comprehensive audit on its $3.5 trillion in assets.
Department annual audits have resulted in a “disclaimer of opinion” (not enough accounting records for assessment) each year since being introduced by the Pentagon as an independent financial audit in 2017. The latest of five failed attempts occurring in November last year.
A US Government Accountability Office report published in March this year found that the Department of Defense accounting systems could not accurately account for or report on physical assets or spending. The report indicated DOD financial management has been on the GAO High Risk list since 1995.
