Boeing's insane markups discovered.

[SirNitram]

Link

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.

And is anyone surprised why we have way too much debt, when we get conned into paying seventy-four bucks for a straight pin?

[DPDarkPrimus]

Wonder what the difference in day-to-day operations in places like Afghanistan would differ if we figured everything at normal retail instead of the "special government rate".

[evilsoup]

This is certainly scumbag-ly, but I still can't help but admire their capitalist spirit .

[Spyder]

Arms dealers are mean.

[weemadando]

Didn't the figure of 22b per year in AirCon in AStan and Iraq cone out recently too?

Seriously. That's ridiculous.

[evilsoup]

I think Boeing are serving the public good here: by overcharging the US for murderfuckill machines by a couple of orders of magnitude, they are making it more difficult to machine-gun Pakistani goat herders, thereby supporting small business owners and upholding the free market.

[Sarevok]

I think Boeing are serving the public good here: by overcharging the US for murderfuckill machines by a couple of orders of magnitude, they are making it more difficult to machine-gun Pakistani goat herders, thereby supporting small business owners and upholding the free market.

You on drugs ?

[evilsoup]

No, but I am finding it hard to get angry with Boeing over this.

[weemadando]

Indeed, the only people to be angry with are the people who approved the contracts.

I wonder how many of them have nice new cars and houses courtesy of Boeing now?

[Ritterin Sophia]

I think Boeing are serving the public good here: by overcharging the US for murderfuckill machines by a couple of orders of magnitude, they are making it more difficult to machine-gun Pakistani goat herders, thereby supporting small business owners and upholding the free market.

Yeah, except for the part where the more money Boeing makes from defense contracts the more money they're going to funnel into lobbyists who are going to demand more defense spending and no defense cuts, money that could be spent elsewhere.

[evilsoup]

Given that I'm going to sell guns to gangsters, would it not be better if I made them pay through the nose?

[Simon_Jester]

When the gangsters in question are perfectly capable of raiding their home country's national old-age pension fund to make up for the money you're costing them... no, I don't think it would be better.

[evilsoup]

Haha, fair enough, point conceded. But I still can't find myself getting angry at this: in the ledger books of these guy's souls, this level of evil is pretty much a rounding error.

[Simon_Jester]

Haha, fair enough, point conceded. But I still can't find myself getting angry at this: in the ledger books of these guy's souls, this level of evil is pretty much a rounding error.

For those of us who aren't advocates of total world disarmament, manufacturing weapons is not in and of itself a gross evil.

What's objectionable here is that Boeing is taking this money at the expense of the taxpayer, in an era when berserk austerity is the name of the game for our political system.

[Beowulf]

Didn't the figure of 22b per year in AirCon in AStan and Iraq cone out recently too?

Seriously. That's ridiculous.

That figure is ridiculous too. The DoD only spends $13 billion on fuel of all types, for everything.

[Shroom Man 777]

Either way, they're still going to lobby the government to increase defense spending - with or without markups. But with their markups, they're actually making things more expensive, and making the United States poorer with every act of war it takes.

If I were some guy in Bakalakadakastan getting shot up, I would probably bleed to death better, or smile at the Apache gun camera wider as it guns Reuters journos down, in the knowledge that the lugnuts of the helicopter gunship are burning a hole in America's wallet and making things hard for them, rather than being cheap and easy for them to afford.

Is making weapons systems more expensive, and thus more costly and more financially prohibitive for the nations that wantonly use these weapons, a good thing? Is making these weapons systems more affordable, and thus allowing the nations to use more of these weapons at less cost, a bad thing?

Hmmmmm.

[erik_t]

Ooh ooh ooh I always love straight-faced comparisons between ungraded and untraced parts off the Home Depot shop floor and OEM aerospace replacement kit.

[Simon_Jester]

Shroomy, the problem is that making the US poorer won't make the US less warlike, not for a long damn time. Everything since 2002 has proven that the US government is perfectly willing to borrow money against its citizens' future to fund even relatively unimportant wars now. They don't care how much the war costs, not really; the defense establishment's right to budget for wars is practically a blank check once the government decides to fight at all.

I can sort of get the "at least you're fucking over your grandchildren with debt while fucking over my children with bombs" angle, but the whole thing is such a colossal waste on both ends that I don't think it makes sense to approve.

Ooh ooh ooh I always love straight-faced comparisons between ungraded and untraced parts off the Home Depot shop floor and OEM aerospace replacement kit.

If this pin is costing seventy-four dollars per, and is being used (and used up) in large quantities, I'd say something has gone wrong- quality control isn't that incompatible with mass production.

If the pins are being used in very small quantities (say, a few per helicopter, and they hold something important on, and you only go through a few of them a year), that's another matter perhaps.

I wish I knew which it was.

[Siege]

I wish I knew which it was.

You can probably dig that information out of the Inspector-General's report here.

I'm no auditor, but at a quick glance it doesn't look at all like they're simply comparing random Home Depot doodads with high-end supersteel geewhat versions.

[That NOS Guy]

Ooh ooh ooh I always love straight-faced comparisons between ungraded and untraced parts off the Home Depot shop floor and OEM aerospace replacement kit.

How much should a straight pin cost then?

[Simon_Jester]

Well, precision machining can make things cost like a motherfucker, largely independent of their actual size... but mass production tends to offset that.

If you're talking about a pin that is only used in one or two places per helicopter, and which is only replaced at the rate of, say, one per chopper per year... yeah, demand for the part is too small to keep up mass production, at which point cost goes through the roof. Even though it's a very small bit of metal, if it has to be just exactly the right size to within a thousandth of an inch, it ain't gonna be cheap.

If you're talking about a pin that gets replaced regularly, and which is used in many places on the helicopter, such that thousands are used up every month... then yeah, they should probably be able to supply them for a lot less than 74$ per, I'd think.

[Sea Skimmer]

Ooh ooh ooh I always love straight-faced comparisons between ungraded and untraced parts off the Home Depot shop floor and OEM aerospace replacement kit.

I like how this all comes out the Army signing a fixed price contract and sticking to the terms, the same thing people have been raving at it to do more of instead of cost plus and other trickery. But also if one actually looks at the source material the article cites, the article is wrong and the Army did get back some of its money. In fact it was so easy to notice that one can only conclude it was deliberate omission by the author. But whatever.

[Winston Blake]

Ooh ooh ooh I always love straight-faced comparisons between ungraded and untraced parts off the Home Depot shop floor and OEM aerospace replacement kit.

How much should a straight pin cost then?

From the report Siege linked to:

For example, the DoD EMALL shows that for NSN 5315-00-823-8682, a straight pin, DLA annual consumption was 603 and DLA had 37,352 on hand at a standard unit price of $0.04, while the 2010 CCAD/Boeing contract requirement was 3 pins at a unit price of $71.01, or a 177,475.0 percent difference. We see no reason for Boeing not to procure these items from DLA to meet CCAD requirements.

In other words, 'DLA' (apparently the 'Defense Logistics Agency') had a massive inventory of spare parts which included that exact same model number. But instead of buying a standard part from the existing DLA stockpile at 4c each, they agreed to buy new ones from Boeing at $71 each.

(Note that the original article has an error - it's $71 each, not $74 each. Not that it makes a difference.)

[Hawkwings]

The more important part of that paragraph is that the contract requirement was 3 pins. Three. If you're only providing that kind of quantity annually, no wonder each one costs so much. Heck, the paper used to print out the paperwork relevant to the pins would have cost $50 alone. It's not Boeing's fault if the DoD wants to buy shiny new pins instead of using the ones in stock.

[Sea Skimmer]

Yeah it doesn't really make any sense at all for Boeing, when given a fixed price contract for spare parts support, to buy them from the DLA. That's inherently contradictory means of sourcing the material. The point of directly sourcing parts like this is basically that it should be quicker and easier then having the DLA buy them, put them in its giant warehouses, and then ship them on to the theater. That makes sense for some stuff, doesn't make sense for others, though additionally the DLA is not supposed to handle repairable items which does place limits on what it can supply as far as helicopter parts would go. Of course the DLA has its whole own slew of problems with spending, if you told them you needed 3 pins they'd buy 500 of them and then loose the crate. They wont throw it away though, you can love them for that, they still had full warstocks of tires for truck designs retired during the Vietnam war in the 1990s.