Lawmakers resume fight against ‘price gouging’ for military parts

A bipartisan group of senators is demanding the Pentagon reveal military contractors’ so-called price gouging tactics that they say can cost the U.S. military billions of dollars every year in overpayments.

In a letter sent to Defense Secretary Lloyd Austin Tuesday evening, Sens. Elizabeth Warren (D-Mass.), Chuck Grassley (R-Iowa), Mike Braun (R-Ind.), and John Fetterman (D-Pa.) say they are particularly concerned defense contractors are exploiting loopholes including the practice of “sweeping.” Such a tactic — where contractors delay submitting cost or pricing data that would enable the government to negotiate fairer price — allows companies to charge the military more for a product.

“We continue to be concerned by audits and press reports that find defense contractors regularly gouge the military,” they wrote, according to the letter obtained by The Hill. “DoD contractors should not be getting away with price gouging, and these abusive practices. DoD must better explain the challenges it faces with the contract process that has caused the government to overpay for goods and services and what steps [the Defense Department] has taken to solve the problem.”

The Pentagon did not respond to a request for comment from The Hill by the time of publication.

In fiscal 2022, the Pentagon awarded $414.5 billion in contracts to the defense industrial base, according to date from the U.S. Government Accountability Office.

But the lawmakers expressed indignation that a chunk of that sum is due to defense contractors using loopholes to routinely refuse to provide the Defense Department (DOD) legally required data to prove that their products’ prices are fair, even on contracts awarded with no competition.

They point to a CBS News report from last year, which found that several defense contractors repeatedly overcharged DOD to gain excess profits of 40 percent to 50 percent. Contractors did so by not providing the needed information on costs prior to reaching an agreement, instead drowning Pentagon contracting officers with documents and data that came only after a deal had been reached — the tactic known as sweeping. Such a move releases the defense firms of liability and potentially hides data that might have been used by the Pentagon to demand better deals.  

“This practice costs billions of dollars and allows contractors to collect excessive profits on the backs of the taxpayers,” the lawmakers write.

The Pentagon has historically paid inflated prices for military spare parts, with a 2019 DOD inspector general report uncovering that TransDigm Group, a large defense contractor, charged $4,361 for a half-inch metal pin, almost a 9,400 percent excess profit.

Another DOD inspector general report found the same contractor bilked the government out of $21 million in a contract by pricing items at up to 3,850 percent more than the reasonable cost.

Legally, all companies involved in a sole-source contract — meaning one without competition — with the Pentagon don’t have to disclose pricing data for deals less than $2 million.

That threshold was raised from $750,000 in the fiscal 2018 Defense policy bill after the industry, claiming an excessive grab of competitive information, sought to erode the Pentagon’s ability to demand cost data.

And for years before that, the Pentagon rarely held companies to that rule.

Another loophole allows contractors to keep cost data from the Pentagon if a part is similar to one that could be sold commercially.

Warren, who sits on the Senate Armed Services Committee, in the past year has pressed the Pentagon several times over the problem of procurement fraud, asking for more information about what companies are keeping from the Defense officials when it comes to military parts prices.

In the latest letter, the lawmakers ask Austin several detailed questions about the challenges the DOD must contend with in the contract process due to sweeping or other tactics, as well as what steps the department has taken to solve the problem.

Such queries include whether companies provide proof of cost or pricing data in advance of the so-called sweep, how extensive the practice is with DOD contractors, how the process works, what actions the DOD takes to prevent contractors from providing sweep data, and any other tactics companies employ during contract negotiations that can delay deals or prevent the Pentagon from ensuring they are receiving a good price.

They ask the Pentagon for answers to the questions by June 12.