After Oversight Committee Inquiry, Inspector General Finds Rampant Price Gouging by TransDigm in DOD Contracts

Dec 13, 2021
Press Release
Committee Members Demand Company Repay $20.8 Million in Excessive Profits

Washington, D.C. (December 13, 2021)—Today, Rep. Carolyn B. Maloney, the Chairwoman of the Committee on Oversight and Reform; Rep. Stephen Lynch, Chairman of the Subcommittee on National Security; and Rep. Ro Khanna, Chairman of the Subcommittee on the Environment, and Rep. Jackie Speier issued the following statements after the Department of Defense Office of the Inspector General (DOD IG) released its second report revealing that TransDigm Group, Inc., which manufactures spare parts used in military aircraft, received nearly $21 million in excessive profits on contracts with the Pentagon.  DOD IG also found that TransDigm uses a business model based on acquiring companies with sole-source contacts, and then hiking up prices on the spare parts those companies manufacture:

 

“Today’s DOD IG report confirms that TransDigm is back at it again, holding the federal government hostage by manipulating sole-source contracts to hike prices on taxpayers,” Chairwoman Maloney stated.  “The Inspector General found that TransDigm has engaged in rampant price gouging on mission-critical aircraft parts.  TransDigm must immediately return the $20.8 million it overcharged American taxpayers.  If it fails to do so, the Committee will take further action.” 

 

“Today’s report demonstrates that TransDigm continues to gouge the Department of Defense for mission-critical contracts, and I join my colleagues in urging TransDigm to return the more than $20 million in excess profits the company received at the expense of American taxpayers between 2017 and 2019,”  said Chairman Lynch.  “The DOD IG also makes clear that Pentagon contracting officers must be properly equipped to ensure that prices charged for sole-source contracts are fair and reasonable, and I look forward to working with DOD and my Oversight Committee colleagues to pass needed acquisition reform legislation to prevent companies from mimicking TransDigm’s business model to take advantage of the U.S. government.”  

 

“The bombshell report released today by the Department of Defense Inspector General shows that TransDigm earned an excess profit of at least $20.8 million from January 2017 to June 2019 by overcharging the Defense Department for spare parts.  I’m calling on TransDigm to refund that $20.8 million back to American taxpayers in addition to the $16.1 million Congress already forced them to return for much of the same exploitative behavior,”  said Chairman Khanna. “This year’s NDAA was a missed opportunity to rein in rampant price gauging that will continue apace with unregulated acquisitions but we can’t wait another full year to take action.  Congress needs to work on legislative fixes to close the loopholes being exploited by TransDigm and other defense contractors to pad their profits at the expense of the public.”

 

“Once again, the Inspector General has found that companies like TransDigm that have sole-source contracts with the Defense Department have taxpayers over a barrel, charging us monopoly prices and making untold profits at the expense of American taxpayers,” said Rep. Jackie Speier, Chair of the House Armed Services Subcommittee on Military Personnel. “Congress should have fixed this problem already. I will fight to ensure we address this blatant issue of waste, fraud, and abuse in next year’s NDAA.”

 

The DOD IG report found:

 

  • TransDigm Earned More than $20 Million in Excess Profit:  TransDigm earned excess profit of at least $20.8 million on 105 spare parts.  Based on DOD IG’s analysis, TransDigm’s excess profit levels on these parts ranged from 2.8% to 3,850.6%.

 

  • TransDigm Frequently Withheld Cost Data:  DOD IG reported that contracting officers “requested uncertified cost data for 26 of the 107 spare parts on 27 of the 153 contracts,” but TransDigm “provided the requested uncertified cost data for only 2 spare parts on 2 contracts and did not provide uncertified cost data for the remaining 24 spare parts on 25 contracts.”

 

  • TransDigm Hikes Prices After Acquiring Companies:  TransDigm immediately increased the prices of parts to DOD in nearly every instance after acquiring manufacturers, frequently by over 25% annually and in some cases by over 200% annually.

 

  • TransDigm’s Business Model Is to Acquire Companies with Sole-Source Contracts:  According to the report, “TransDigm seeks out and competes for the acquisition of aerospace companies that design, manufacture, and sell specialized, sole-source products that have stable demand and profit margins.”

 

  • DOD Is Forced to Pay Inflated Prices to Meet the Needs of the Warfighter:  According to the report, “If the contracting officers are unable to negotiate a reasonable price, they will have to award the contract at whatever price the contractor is willing to accept in order to meet mission requirements or risk weapon systems sitting idle from a lack of spare parts.”

Today’s report recommended:

 

  • DOD’s Logistics Agency should seek a voluntary refund from TransDigm of at least $20.8 million in excess profit on 150 contracts.

 

  • DOD’s Defense Pricing and Contracting office should determine whether the current policy for performing cost analysis is sufficient and identify alternative contracting strategies for procuring items from companies such as TransDigm more efficiently and at a lower price.

 

A representative from the Office of the Department of Defense Office of Inspector General provided the following statement on their findings:

 

“The DoD should explore alternative contracting strategies for negotiating with companies such as TransDigm that sell sole-source spare parts in small quantities at low dollar values to the DoD,” said Ms. Theresa Hull, Assistant Inspector General for Audit Acquisition, Contracting, and Sustainment.  

 

Background:

 

On March 20, 2017, Chairman Ro Khanna requested that DOD IG open an investigation into TransDigm for unreasonable price increases on spare parts for military aircraft. 

 

On February 25, 2019, DOD IG released a report that showed TransDigm earned $16.1 million in excess profit on 46 of the 47 spare parts it sold to DOD between January 2015 and January 2017, with profit percentages ranging from 17 to 4,451%. 

 

On May 15, 2019, the Oversight Committee held a hearing to examine the results of the DOD IG report and released a staff memo revealing TransDigm’s extreme profit margins and efforts to conceal data about the company’s costs.  At the hearing, TransDigm’s Chief Executive Officer Kevin Stein admitted that the company’s employees withheld cost data from contracting officers.  The DOD Assistant Secretary for Acquisition, Kevin Fahey, testified that DOD overpaid for mission-critical parts, diverting resources that could have been used for additional needs.  Members of the Committee urged TransDigm to immediately reimburse DOD for the excess profits it earned at the expense of American taxpayers.

 

On May 24, 2019, TransDigm refunded the federal government $16.1 million in excess profits it earned.

 

On June 6, 2019, the Oversight Committee sent a letter requesting that DOD IG conduct a comprehensive review of TransDigm overcharges in the company’s contracts with the Pentagon.

 

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117th Congress