Lee Amendment Takes on Arms Company Price Gouging

June 29th, 2023 - by William Hartung / Responsible Statecraft

House Appropriations Committee Proposal Would
Curtail Overcharging by US Weapons Makers

William Hartung / Responsible Statecraft

(June 27, 2023) — Price gouging by weapons contractors large and small has been a chronic problem for decades, and by and large the Pentagon’s response has been underwhelming. With a handful of exceptions, contractors that overcharge the Pentagon usually get away with fines that they can easily treat as a cost of doing business, if they are held accountable at all.

As Rep. Barbara Lee (D-Calif.) pointed out recently, it’s not clear that anyone in the federal government even has a handle on the scope of the problem, much less a viable plan for solving it. “DoD [the Department of Defense] can’t even identify a number or a general amount that they are overpaying for items,” Lee argued in a hearing last week.

But some recent developments have made the issue more difficult to ignore. An investigation by CBS’ 60 Minutes, coupled with several reports by the Pentagon’s Office of the Inspector General and ongoing efforts to address the problem by key members of Congress like Sen. Elizabeth Warren (D-Mass.), have underscored the fact that weapons corporations are likely overcharging the taxpayers by billions of dollars each year.

As my colleague Julia Gledhill of the Project on Government Oversight and I have noted, in the past 15 years the Pentagon’s internal watchdog has exposed price gouging by contractors of all shapes and sizes, ranging from giants like Boeing and Lockheed Martin to lesser-known companies like TransDigm Group. As far back as 2011, Boeing made about $13 million in excess profits by overcharging the Army for 18 spare parts used in Apache and Chinook helicopters. To put that in perspective, the Army paid $1,678.61 each for a tiny helicopter part that the Pentagon already had in stock at its own warehouse for only $7.71.

In a more recent example cited in the 60 Minutes piece referenced above,former Pentagon contract negotiator Shay Assad pointed to a case in which NASA bought an oil pressure switch, an engine part, for $328. The Pentagon paid $10,000 for the very same part. Assad also revealed that Transdigm has charged the Pentagon $119 million for parts that should have cost less than one-fourth of that amount.

Now comes Rep. Lee, who offered up an amendment that would force the Pentagon to take an important first step towards addressing this problem. The proposal earned broad support from the House Appropriations committee, which unanimously approved the amendment to the Defense Appropriations Act in a hearing last Thursday.

The proposal would require the Pentagon to report on excess payments to weapons contractors, including any actions taken to claw back overpayments or take disciplinary action against companies engaged in price gouging as well as any cases that prompted referrals to the Justice Department for possible criminal action.

The information required by the Lee amendment is essential to any meaningful effort to reduce or eliminate routine contractor overcharges. On the face of it, it’s hard to see how any member of Congress could oppose such a measure, but we can count on the weapons industry to use its considerable lobbying clout in an attempt to sideline the proposal.

The question is how many members of Congress will support continuing a massive waste of taxpayer dollars that undermines American defense capabilities and vacuums up cash that could be used to fund more urgent priorities, all in order to curry favor with weapons makers. There really is no acceptable reason to let arms companies raid the treasury to line their pockets at the expense of a more affordable — and effective — approach to defense.

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