The Defense Logistics Agency (DLA) overpaid Boeing [BA] nearly $13.7 million for sole-source spare parts and should implement options to get that money back, the Defense Department inspector general (DoD IG) said in a report released Monday.
DoD IG performed an audit on two contracts awarded to Boeing to determine whether DLA obtained best value and purchased sole-source spare parts at fair and reasonable prices. DoD IG specifically reviewed costs for 60 spare parts on 2,659 delivery orders, valued at around $81.1 million, to determine if DLA Aviation, a division of DLA, received a fair and reasonable price.
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| DLA overpaid Boeing for spare parts that supported the B-2 bomber shown here, DoD IG said. Photo: Air Force. |
DoD IG found that DLA Aviation contracting officers did not negotiate fair and reasonable prices on 1,469 delivery orders, valued at $27.2 million, thereby not getting the best value for the government. Pricing problems occurred, DoD IG said, because DLA Aviation contracting officers did not conduct a fair and reasonable price analysis.
DLA Aviation guidance, in addition, did not require contracting officers to obtain and review contractor purchase order histories when determining fair and reasonable prices nor complete a subsequent review of pricing for spare parts after the parts were initially placed on long-term contracts, as allowed by the contract.
DoD IG also found that Boeing did not maintain complete cost and pricing data for 20 delivery orders, valued at $3.4 million, because contracting officers did not conduct adequate contract oversight.
As a result, DLA Aviation paid approximately $13.7 million in excess of fair and reasonable prices for 1,469 delivery orders, DoD IG said. DLA Aviation also may have made payments in excess of the fair and reasonable price for an additional 20 delivery orders, and if prices aren’t corrected, DLA Aviation will continue to overpay on future sole-source spare parts procured from Boeing on the two audited contracts.
DoD IG recommended the DLA director to implement options to recover the overpayment from Boeing, renegotiate prices for overpaid parts and revise acquisition procedures to require contracting officers to obtain and review contractor purchase order histories when determining fair and reasonable prices for sole-source acquisitions. DoD IG also recommended the DLA director complete periodic reviews of the contractor’s cost basis for spare parts produced multiple times on a long-term contract and to also conduct periodic evaluations of contract files for long-term contracts to verify that the contractor maintained contract data.
Boeing spokesman Paul Guse said Tuesday in a statement the company continues to have open and productive dialogue with DLA officials to respond to issues identified in the DoD IG report as well as address DLA’s letter requesting a voluntary repayment. Guse said Boeing is discussing process improvements going forward in areas such as streamlined processes, enhanced performance and improved affordability.
One of the contracts in question was for aviation spare parts, components, assemblies and subassemblies to support the B-1B, B-52, E-3, KC-135 and Minuteman III missile programs. The other contract was for aviation spare parts for the B-52, B-2, E-3, KC-135, Minuteman III and cruise missile programs.
DLA Aviation, a division of DLA, manages engine spares on fighters, bombers, cargo aircraft and helicopters; airframe and landing gear parts; flight safety equipment and propeller systems. It provides DoD more than 84 percent of its spare parts.