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Senator Says U.S. May Be Paying Billions Extra for Parts

A Senate committee chairman has demanded that the Pentagon explain four audits -- two involving Boeing Co. (BA) -- that he said shows the Department of Defense may be paying billions of dollars extra for spare parts.

“In some cases, the DoD paid for parts it did not use,” Senator Tom Carper, a Delaware Democrat who heads the Senate Homeland Security and Governmental Affairs Committee, said in a letter to a top Pentagon official. “In other cases, the price paid was much higher than was appropriate or necessary.”

The audits by the Pentagon’s inspector general “detailed millions of dollars in wasteful spending and contractor oversight failures” and their findings “are, unfortunately, only illustrative examples,” Carper wrote Deputy Defense Secretary Ashton Carter in the letter dated yesterday. It was also signed by his Republican counterpart on the panel, Senator Tom Coburn of Oklahoma.

Based on previous inspector general reports and work completed by Carper’s panel “we believe there could be millions, if not billions of dollars, more at stake if broader reviews of spare parts were conducted,” the senators said. “This is a troubling reminder that the DoD still has a lot of work ahead.”

Although the amounts of individual parts overcharges are small in the context of a $527 billion defense budget, not including war funding, disclosures of wasteful spending have provoked criticism in the past.

Toilet Seat

Defense contractor overcharges in the 1980s undercut public confidence in Pentagon management. Senate committees disclosed overpriced spare parts -- including a $37 machine screw, a $435 claw hammer and a $640 toilet eat -- just as the Reagan administration was starting a major increase in defense spending.

The inspector general said in a June audit that the Defense Logistics Agency paid Chicago-based Boeing $13.7 million more than it should have for parts, including $2,286 apiece for an aluminum “bearing sleeve” that should have cost $10.

That example was cited today by Senator Saxby Chambliss, a Georgia Republican, in a Senate Armed Services Committee hearing examining the impact of automatic budget cuts. He said the Pentagon must eliminate such waste as it faces another round of automatic budget cuts known as sequestration.

Carper and Coburn asked Carter to provide by Nov. 30 “an assessment of the scale of the problems” with parts purchases and effectiveness of policies put in place in 2011 to prevent overpricing.

Talks With Boeing

The lawmakers also asked Carter to outline the Pentagon’s efforts to “recover the overpayments to contractors.”

Defense Logistics Agency spokeswoman Mimi Schirmacher said in an e-mail that the agency and Boeing are negotiating to determine how much the company will return for overcharges disclosed in the June audit.

Boeing “has been working with the Defense Logistics Agency” and the inspector general “throughout the audit process,” Ellen Buhr, a spokeswoman for Boeing’s Global Services and Support unit, said in an e-mailed statement in June. “We are working with DLA to review the official report and to understand the issues identified.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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