Senators urge Pentagon to investigate price gouging by military contractors after 60 Minutes report
A bipartisan group of U.S. senators asked the Department of Defense to launch an investigation into longstanding price gouging by defense contractors Wednesday.
In a letter to Secretary of Defense Lloyd Austin, Sens. Bernie Sanders (I-VT), Elizabeth Warren (D-MA), Chuck Grassley (R-IA), Mike Braun (R-IN) and Ron Wyden (D-OR) said they were prompted by a six-month investigation by 60 Minutes that uncovered extensive price gouging. Experts told 60 Minutes that military contractors overcharge the Pentagon on almost everything the DOD buys each year.
"Lockheed Martin, Boeing, Raytheon, and TransDigm are among the offenders, dramatically overcharging the Department and U.S. taxpayers while reaping enormous profits, seeing their stock prices soar, and handing out massive executive compensation packages," the senators wrote. "These companies have abused the trust government has placed in them, exploiting their position as sole suppliers for certain items to increase prices far above inflation or any reasonable profit margin."
In March, Deputy Defense Secretary Kathleen Hicks announced the largest Pentagon budget ever: $842 billion. Almost half will go to defense contractors.
"Dollars that are wasted on overpriced weapons or spare parts cannot be spent to counter adversaries or support service members," the senators wrote.
The five senators' letter, addressed to Secretary of Defense Lloyd Austin, cites that in 2020, the defense department's Office of Inspector General reported that roughly 1 in 5 of its ongoing investigations were related to procurement fraud. The Department of Defense has been on the Government Accountability Office's high-risk list for financial management since the 1990s.
"The DOD can no longer expect Congress or the American taxpayer to underwrite record military spending while simultaneously failing to account for the hundreds of billions it hands out every year to spectacularly profitable private corporations," the senators wrote.
Shay Assad, now retired after rising to become the defense department's most senior and awarded contract negotiator, pointed 60 Minutes to the Patriot weapons system as one example. In 2015, Assad ordered a review and Army negotiators discovered Lockheed Martin and its subcontractor, Boeing, were grossly overcharging the Pentagon and U.S. allies by hundreds of millions of dollars for Patriot PAC-3 missiles.
Lockheed Martin told 60 Minutes it, "constructively and ethically works with the U.S. government to support its national defense, intelligence, and international security cooperation objectives." "We negotiate with the government in good faith on all our programs to meet its mission needs with the best and most effective technologies and systems in compliance with Federal Acquisition Regulations and all other applicable laws."
After the review, the Pentagon negotiated a new follow-on contract and saved the Department of Defense $550 million.
"…[W]e take very seriously our responsibility to support the warfighter and our commitments to the U.S. government and taxpayer," a Boeing spokesperson said.
Retired Air Force Lieutenant General Chris Bogdan, who oversaw the purchase of some of the country's most critical weapons systems, pointed 60 Minutes to another problematic Lockheed Martin contract. He took the reins of the troubled F-35 Joint Strike Fighter program in 2012, when the program was seven years behind schedule and $90 billion over the original estimate. Bogdan said the biggest costs are yet to come. Support and maintenance could end up costing taxpayers $1.3 trillion.
Lockheed is delivering the aircraft the Pentagon paid to design and build, but under the contract, the company and its suppliers retained control of some of proprietary information — the design and repair data — needed to fix and upgrade the plane.
The 60 Minutes report also looked at Raytheon, where Assad was a top executive before going to work at the defense department. Army negotiators said Raytheon made "unacceptable profits" from the Patriot missile defense system by dramatically exaggerating the cost and hours it took to build the radar and ground equipment. Raytheon stated that it is working to "equitably resolve" the matter and the company has informed investors that it has set aside $290 million for probable liability.
TransDigm, a fast-growing company founded by Nick Howley, was also part of the 60 Minutes report. TransDigm has taken over companies that make spare parts for the military. Last year, Howley was called before Congress a second time over accusations of price gouging. Assad's review team found the government will pay TransDigm $119 million for parts that should cost $28 million.
TransDigm told 60 Minutes that the company follows the law and charges market prices.
On Thursday, the company told 60 Minutes in an emailed statement: "TransDigm companies manufacture over 500,000 parts for mostly commercial aircraft used all over the world and are also proud to supply the DoD with reliable, high-quality aircraft products. ... TransDigm has engaged directly with the DoD to ensure better exchange of information and will continue to work with the DoD to improve the procurement process as it relates to its business with TransDigm. ..."
The Department of Defense previously responded to 60 Minutes' report from Sunday, writing in part: "The Department is committed to evaluating all DoD contracts for fair and reasonable pricing in order to minimize cost to the taxpayer and maximize the combat capability and services delivered to the Department. Robust competition within the defense industrial base is one of the surest ways to obtain reasonable pricing on DoD contracts. For some defense requirements, however, the Department is reliant on single suppliers, and contracting officers must negotiate sole-source contracts using statutory and regulatory authorities that protect the taxpayers' interests. ..."
Editor's note: An earlier version of this article incorrectly referred to Nick Howley as the CEO of military contractor TransDigm. He is the company's founder.