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PostPosted: Thu Jun 30, 2011 1:30 pm 
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Boeing has apparently been ripping off the taxpayer bigtime in a repeat of the 1980s $700 toilet seat incident.

This is a large part of why I so strongly oppose cutting defense spending by looking at big-ticket items and trying to cut numbers or cut programs. There's no reason to when this is going on. If we really went through things with a fine-toothed comb, there's immense savings to be realized just in getting rid of fraud and unnecessary staff and "support activity".

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Boeing Co. raked in millions of dollars from the U.S. Army by marking up spare helicopter parts as much as 177,000 percent, according to a Defense inspector general report first obtained by the Project on Government Oversight.

Boeing, a major defense contractor, overcharged the Army on 18 different parts and collected $23 million dollars instead of the $10 million it should have received in fiscal year 2010. One part, a straight pin that usually valued at $0.04, was sold to the Army for an astronomical $74.01 per unit. A plain stud used on Apache helicopters fetched $3,369.48, even though it usually retails for $190.00 a piece - a 1,673 percent markup.

Though such transactions may appear miniscule compared to the large multi-billion dollar budgets the Pentagon is usually accustomed to, the markups prove to be much more lucrative throughout the life span of a particular defense project where these costs can accumulate, like an Apache helicopter.

"The cost to buy a weapon system out of the factory, such as the AH-64 helicopter, usually is less than the cost to operate and maintain the weapon over its life," explains the Project on Government Oversight report. "Parts on a weapon have to be replaced at varying intervals and, similar to how the human body replaces most cells in the body in less than a decade, a major weapon system with a long-enough life span may eventually be largely rebuilt with new spare parts."

The Pentagon inspector general who filed the report recommended that the Defense Department seek a refund from Boeing for the lost tax-payer dollars, but the Army declined to do so. Instead, it cited previous price-fixed contracts which it entered with Boeing that do not require adjusting part prices based on what they may be selling for after the fact.

Though certainly not the first to take advantage of the government procurement process, Boeing may have struck a chord in a particularly sensitive fiscal environment as debt-ceiling talks heat up on the Hill and lawmakers struggle to rein in spending.


This is $13 million in fraud in just helicopter parts - one tiny aspect of military procurment. How much more is out there?

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PostPosted: Thu Jun 30, 2011 1:46 pm 
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For every pin bought there are 47 meetings. I urge the gov to stop paying for all the meetings.

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PostPosted: Thu Jun 30, 2011 1:52 pm 
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That could be a winner. Think how much electricity could be saved by turning off so many computers used to make PowerPoint slides.

This reminds me of a joke: When NCOs don't know what else to do, they hold a formation. When officers don't know what else to do, they hold a staff meeting.

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PostPosted: Thu Jun 30, 2011 4:36 pm 
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Sounds like a good plan.

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PostPosted: Thu Jun 30, 2011 4:43 pm 
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A lot. It's my hypothesis that the congressional requirement for comm troops in the USAF have to have the Security+ cert is because some congress critters know some guys at Comptia. We can't just take USAF test, we have to get the certification, which requires a test that is paid for by the USAF. As far as I know the cert is only good for getting a job working for the DoD. Not to mention all the MSgts that create GS positions where they are before they retire, then not-so-mysteriously find employment in that position. It's a huge bureaucracy, so there's infinite opportunistic , especially if whatever they are doing can be labeled "classified" and can't even be brought to light without the threat of getting thrown in jail.

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PostPosted: Thu Jun 30, 2011 6:13 pm 
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The worst part of the whole Sec+ thing for all comm troops (it's completely useless for me as a programmer) is that it's no longer a lifetime certification, but a continuing education requirement, so now there's the layout for the initial class, then the cost of the cert test, then the cost of ongoing education and testing for a cert that NOBODY in the AF really needs...


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PostPosted: Thu Jun 30, 2011 7:15 pm 
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There is obviously a conflict of interest present for the group in the defense department specifically responsible for awarding contracts. Either that or gross incompetence. I don't find that either would be surprising.

There is a very longstanding attitude for engineers to get hired on with major defense contractors for a reason. The contractors are fattened up with spare people who do nothing while the core groups actually do design and development. It's very lucrative to the point of being ridiculous. There are many jokes about getting paid to sit on your ***, blow some stuff up once in a while and then go out to a 2 hour lunch break.

Maybe the Defense Department should be auditing the purchase orders to see where these supposed costs are coming from. Shame on Boeing for being unscrupulous, but there really isn't a set "price" for anything. It's whatever the Government can negotiate. It can obviously do better.

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PostPosted: Sat Jul 02, 2011 2:57 pm 
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I have a Former Marine friend that is working for a government contractor consulting firm, and he was telling me about alternators for some of the marines' trucks. Since they're under contract, they have to be bought from Oshkosh at like $6500. But that same alternator could be bought directly from the supplier for $1200.

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PostPosted: Sun Jul 03, 2011 2:20 am 
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This doesn't just happen in government. I know a firewall hardware vendor that charged $1200 for an $89 Toshiba laptop hard drive when it was ordered as a replacement for a hardware failure.

They got away with it because the if the customer installed anything that wasn't provided by the vendor it would violate the support contract.


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PostPosted: Sun Jul 03, 2011 9:44 am 
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My father was telling me a while back how large construction firms regularly get involved in lawsuits at the end of a job as all of the contractors try to weasel out of paying for anything.

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PostPosted: Sun Jul 03, 2011 10:44 am 
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Part of the problem here is that the procurement of the DoD is simply so labyrinthine that it's easy to hide this sort of nonsense. In the examples from private transactions, chicanery was going on, it just took the form of a lawsuit or some other legal shield like abusing a contract to get away with it. In cases like this, it's a matter of there being so many parts and so many transactions that they simply hide in the weeds.

Think about how many parts a sophisticated aircraft like an AH-64 must have. Then add to that the fact that, as far as I know, there is no point at which a clerk or mechanic actually holds the box with a straight pin in it, and looks at a price and can go "holy ****, this can't be right!" and call the Waste, Fraud, and Abuse hotline (which does exist. I have a little personal image in my head of calling it and hearing "Welcome to the Waste, Fraud, and Abuse Hotline. For Waste, press one, for Fraud, press two, For Abuse, press three. For a combination, or if you are unsure, press nine to speak to a representative")

Then there is the fact that contracting is handled by officers that.. well, aren't really contracting experts. The actual contracting officer is usually pretty senior, an O-5 or above, but he's still most likely not someone who has spent a career on contracting. A contracting officer's representative is a more junior officer, who also is not that well-trained; most likely he's taken a few online courses (like I have) and maybe taken a week-long or so classroom course (which I haven't, thankfully).

Finally there is the byzantine mess that is the Defense Logistics Agency. This is an agency known for keeping war stocks of spare tires for trucks retired back in the Viet Nam era well into the 1990s. Don't ask me how it works; I don't know and strongly suspect that absolutely no one on the face of the earth actually does either. It's a lot like the Imperium in WH40K; it's such a mess of so many different items to keep track of, ship, and stock, and has evolved without real oversight of its internal processes for so long that no one person can really have a grip on what's actually going on.

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PostPosted: Sun Jul 03, 2011 6:16 pm 
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The computer system in use by the Army in the mid 1990s showed price per unit for every item in its inventory. Clerks at Organizational level could call into question any price that seemed out of line.

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PostPosted: Sun Jul 03, 2011 7:01 pm 
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Kairtane wrote:
The computer system in use by the Army in the mid 1990s showed price per unit for every item in its inventory. Clerks at Organizational level could call into question any price that seemed out of line.


I remember that system, although I can't remember what its name was. However, I believe it relied on an a database of prices; it wasn't like a receipt for an actual transaction.

However, you point out that I sort of misspoke. There very well be a place where a clerk can look and see what the price the government was supposed to be paying for an object is, but because of the phenomenal complexity of the supply system, the clerk isn't actually looking at the real amount paid.

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PostPosted: Tue Jul 05, 2011 1:30 pm 
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Is it fraud? I'm not so sure. You have to look at how their contract is set up. If company A and Boeing compete on a contract, company A may charge 3 million for a helicoptor, and 1 million for maintenance, and Boeing offerred 1 million for the chopper and 2 million for maintenance. That makes Boeing the better deal, regardless of the ridiculous maintenance costs.

Furthermore, it may have been a good faith estimate (or close) when the lump sum cost for each part was established. They found a way to make it cheaper. Meanwhile, Boeing could be losing its shirt on propellers.

It looks messed up if you look at one item, but how does it look overall?


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PostPosted: Tue Jul 05, 2011 3:27 pm 
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Overall it probably looks like much worse fraud ;)

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PostPosted: Tue Jul 05, 2011 4:35 pm 
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Arathain Kelvar wrote:
Is it fraud? I'm not so sure. You have to look at how their contract is set up. If company A and Boeing compete on a contract, company A may charge 3 million for a helicoptor, and 1 million for maintenance, and Boeing offerred 1 million for the chopper and 2 million for maintenance. That makes Boeing the better deal, regardless of the ridiculous maintenance costs.

Furthermore, it may have been a good faith estimate (or close) when the lump sum cost for each part was established. They found a way to make it cheaper. Meanwhile, Boeing could be losing its shirt on propellers.

It looks messed up if you look at one item, but how does it look overall?


I guarantee if you dig into the morass that is military procurement, that overall defense contractors are doing extremely well.

In many ways, this sort of waste is actually a byproduct of cuts. Who is being really competing with anymore for defense helicopter contracts? For aircraft in general, it's basically Lockheed Martin and Northrop Grumman.. and look at both of those names. When the F-14 was produced, Grumman was an independent company that produced it. The excessive cuts of the 1990s forced too many mergers and reduced competition too much.

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PostPosted: Tue Jul 05, 2011 9:36 pm 
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Diamondeye wrote:
Arathain Kelvar wrote:
Is it fraud? I'm not so sure. You have to look at how their contract is set up. If company A and Boeing compete on a contract, company A may charge 3 million for a helicoptor, and 1 million for maintenance, and Boeing offerred 1 million for the chopper and 2 million for maintenance. That makes Boeing the better deal, regardless of the ridiculous maintenance costs.

Furthermore, it may have been a good faith estimate (or close) when the lump sum cost for each part was established. They found a way to make it cheaper. Meanwhile, Boeing could be losing its shirt on propellers.

It looks messed up if you look at one item, but how does it look overall?


I guarantee if you dig into the morass that is military procurement, that overall defense contractors are doing extremely well.

In many ways, this sort of waste is actually a byproduct of cuts. Who is being really competing with anymore for defense helicopter contracts? For aircraft in general, it's basically Lockheed Martin and Northrop Grumman.. and look at both of those names. When the F-14 was produced, Grumman was an independent company that produced it. The excessive cuts of the 1990s forced too many mergers and reduced competition too much.


Doing extremely well =/ fraud. All I'm saying is that you can't look at one item in a huge contract and make a judgement.


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PostPosted: Tue Jul 05, 2011 10:02 pm 
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Arathain Kelvar wrote:
Diamondeye wrote:
I guarantee if you dig into the morass that is military procurement, that overall defense contractors are doing extremely well.

In many ways, this sort of waste is actually a byproduct of cuts. Who is being really competing with anymore for defense helicopter contracts? For aircraft in general, it's basically Lockheed Martin and Northrop Grumman.. and look at both of those names. When the F-14 was produced, Grumman was an independent company that produced it. The excessive cuts of the 1990s forced too many mergers and reduced competition too much.


Doing extremely well =/ fraud. All I'm saying is that you can't look at one item in a huge contract and make a judgement.


Maybe I was being too subtle. What I meant was "doing extremely well on a line-item basis" as in too well, like this.

No, you cannot look at just one line item in a huge contract, but this is not the first time things like this have happened; it was a rampant problem back in the 80s. Are there other parts where the contractor is not making much profit, or even taking a loss? Yes, but I think you would be hard-pressed to establish that overcharges of this sort are necessary for the net result of the contract to be the amount the contractor agreed to.

Just the magnitude and complexity of the contract, in fact, make for a perfect opportunity to do this sort of thing simply because there are so many line items to hide this in.

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