The inspector general for the US Department of Defense (DoD) is claiming airframer Boeing overcharged the US Air Force (USAF) for spare parts on the C-17 Globemaster III strategic transport.
A report issued by the office of the inspector general on 29 October says the air force “did not pay fair and reasonable prices” for 26% of spare parts reviewed under an investigation into the C-17 sustainment programme.
However, the amount of excess pricing was relatively minor compared to total contract values, amounting to nearly $1 million in overpayment as part of a programme worth billions of dollars over 10 years.
Boeing concluded C-17 deliveries to the USAF in 2015, with the company’s Globemaster III unit shifting primarily to a focus on upgrades and sustainment. The US government purchased just over 220 of the four-engined cargo jets.
In 2021, Boeing was awarded a $23.8 billion contract from the Pentagon for C-17 sustainment support through 2031. That deal includes engine management, sustainment logistics, depot maintenance and foreign military customer service.
Non-US military operators of the C-17 include Australia (8), Canada (5), India (11), Kuwait (2), Qatar (8), the UK (8), the United Arab Emirates (8), and three aircraft operated directly by NATO headquarters.
Under that sustainment contract, the air force reimbursed Boeing for material deliveries using a cost-plus reimbursement arrangement, with the government paying incurred costs plus a negotiated fixed fee.
Now, the Pentagon’s inspector general alleges that under the arrangement Boeing up-charged taxpayers.
The office says it initiated an audit of the C-17 sustainment programme based on a anonymous tip submitted via a defence department hotline. The review sought to assess whether the USAF paid a “fair and reasonable price” for C-17 spare parts under its contract with Boeing.
Using a non-statistical sample of 46 spare parts covered under the programme, the inspector general’s office found the air force overpaid for 26% of items reviewed, representing 12 individual parts.
The service is estimated to have paid an additional $1 million total in excess of assessed fair and reasonable prices. A determination could not be made on more than half of spare parts reviewed, due to lack of historical record keeping by the USAF.
While that is a fairly small amount compared to the nearly $24 billion total value of the C-17 sustainment contract, DoD inspector general Robert Storch called on the air force to address the issue, saying continued overpayment could eventually produce operational impacts.
“Significant overpayments for spare parts may reduce the number of spare parts that Boeing can purchase on the contract, potentially reducing C-17 readiness worldwide,” he says.
Storch’s office singled out a C-17 lavatory soap dispenser for which the USAF paid a 7,943% markup – or 80 times the cost of a similar commercially available device.
That soap dispenser was apparently mentioned specifically in the original tip that prompted the investigation.
While precise figures on the soap dispensers, including unit price, quantity and total cost, are redacted in the inspector general’s report, the findings claim the air force overpaid by a margin of $149,072.
Boeing is pushing back on the findings, saying the report “appears to be based on an inapt comparison of the prices paid for parts that meet aircraft and contract specifications and designs versus basic commercial items that would not be qualified or approved for use on the C-17”.
The airframer on 30 October said it will provide a detailed written response in the coming days.
Other parts identified by auditors for excessive markups include a pressure transmitter and physical retaining bands. For these, the air force is alleged to have paid 36 times and nine times the commercial cost, respectively, for a total excess value of some $435,000.
In all three cases, the inspector general says it compared prices paid to the cost of similar commercially available items identified by the Defense Contract Management Agency.
The report does not address whether the identified commercially available parts are unsuitable for use on the C-17, except in the case of the lavatory soap dispenser.
“The overall function of these soap dispensers is identical, whether used in a residential kitchen or bathroom, commercial restaurant bathrooms or in an aircraft lavatory,” the inspector general’s office says.
In its recommendations, the office suggests the USAF take greater action to validate the accuracy of data used for contract negotiation, conduct contract surveillance to identify price increases during execution and review billing invoices to determine fair and reasonable prices before payments are issued.
