Ahead of Hearing, Oversight Committee Releases New Information on Price Gouging by TransDigm in DOD Contracts
Washington, D.C. (Jan. 19, 2022)— Today, Rep. Carolyn B. Maloney, Chairwoman of the Committee on Oversight and Reform, released documents obtained by the Committee and information from former executives and employees highlighting the tactics used by TransDigm Group Inc. to price-gouge the Department of Defense (DOD) for mission-critical spare parts needed by the military.
“The documents and information obtained by the Committee reveal TransDigm’s unscrupulous tactics to rip off taxpayers,” said Chairwoman Maloney. “TransDigm must immediately return the $20.8 million it overcharged American taxpayers. These outrageous abuses demand swift action from Congress to prevent this behavior in the future.”
The documents and information, which were obtained as part of the Committee’s investigation into TransDigm, illustrate many of the tactics used by TransDigm to overcharge DOD for mission-critical parts. These tactics includes limiting competition, concealing cost data, negotiating for contracts with fewer transparency requirements, and avoiding long-term agreements that would lock in prices. Former TransDigm employees also detailed TransDigm’s aggressive pricing practices and the company’s negative reputation within the aerospace industry.
Statements from Former TransDigm Executives and Employees
- TransDigm’s Reputation for Abusive Pricing Practices
- A former executive at a TransDigm subsidiary shared with Committee staff that the perception within large circles of the aerospace and defense community is that TransDigm is “the cancer of the industry.”
- A former director at a TransDigm subsidiary explained, “When TransDigm acquired [the director’s company], it was disheartening since I had tried to do the right thing for the warfighter my whole career.”
- TransDigm’s Business Model of Aggressively Raising Prices
- According to an executive at a former TransDigm subsidiary: “TransDigm uses their market position on sole-source to get as much out of the pricing (margin) as they can, even when out of the norm. If you look after a company is acquired you would see a big jump in pricing.”
- The former executive also told Committee staff: “TransDigm’s acquisition strategy is known—strong M&A [mergers and acquisition] company—once ‘products’ are qualified on a program or platform there is little to no way to compete, strong sole-source or monopoly position.”
Documents Reveal TransDigm’s Tactics to Price-Gouge the Government
- Limit Competition to Create a Monopoly
- A newly released email shows TransDigm subsidiary Aerocontrolex sought to limit competition after DOD found possible alternative suppliers. Referring to these other suppliers, the TransDigm subsidiary manager instructed an employee to, “force them to cease-and-desist” and to “get them to sign whatever docs we need to ensure they only sell to us…no one else.”
- Conceal Cost Data from Government Contracting Officers
- TransDigm’s Chief Financial Officer prepared an internal analysis for Chairman Nick Howley and Chief Executive Officer Kevin Stein highlighting the “risk of TDG [TransDigm Group] being forced into a cost disclosure arrangement” was that it would “lead to an EBITDA [earnings before interest, taxes, depreciation, and amortization] reduction in the $45–50 million ballpark.”
- An internal TransDigm training presentation instructed employees to “effectively” sell commercial items to DOD by “Providing the most impact with minimum amount of information” and by being “aggressive.”
- A sales director of TransDigm subsidiary Aerocontrolex emailed talking points for employees to use when fielding DOD requests for cost and price data. The sales director wrote that when communicating with contracting officers, employees should say that “it is not required by the FARs [Federal Acquisition Regulations],” “You are helping your counterpart do his job,” “ACX is offering this as a solution to support their warfighter,” and they “welcome all opportunities to support the government to economically procure goods to support the troops.”
- In one email between a TransDigm business unit manager and a DOD contracting officer, the business unit manager sought to split contracts to keep them under the simplified acquisition threshold, which would make it easier to conceal cost data. The manager asked the contracting officer “if the limit is $150k per order, why not split the order into 2 separate orders to fulfill the demand and meet the price quoted?” After the contracting officer explained that the Federal Acquisition Regulation prohibited this, the manager lowered the price per part to stay just below the threshold.
- An internal TransDigm corporate training presentation, entitled “The Art of Defense Pricing 101,” instructed employees that the “goal” is to “grow the Value of your product or service While staying off the radar.”
- Avoid Long-Term Agreements
- TransDigm refused a request from DOD for a five-year contract. A TransDigm subsidiary president emailed, “I would expect that this part would continue to have commercial pricing action above and beyond ~5%/yr, so we are losing out if we agree to an LTA [long-term agreement],” and added that “Just annual contracts would be best.”
On May 15, 2019, the Committee held a bipartisan hearing examining a DOD Office of Inspector General (OIG) report that found TransDigm received $16.1 million in excess profits on 46 of the 47 parts reviewed. Ahead of the hearing, former Chairman Elijah E. Cummings released a memo that summarized documents and information from whistleblowers obtained by the Committee. After Committee Members called on the company to refund the money during the hearing, TransDigm repaid the full $16.1 million to DOD.
On December 13, 2021, the DOD OIG released a new report requested by the Committee revealing that TransDigm received an additional nearly $21 million in excess profits on 105 of 106 types of spare parts purchased by the Pentagon.
Click here to watch today’s hearing.
Click here to read the documents.
Click here to read accounts from former executives and employees.