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Golden Hammer: Pentagon paid too much for Humvee repairs

Report shows officials never checked prices

- The Washington Times - Thursday, April 10, 2014

Like any frustrated motorist gouged on repair bills, taxpayers have had to shell out $26.3 million too much to fix the Pentagon's fleet of Humvees, the military's watchdog said.

That's because Pentagon officials never checked price or sales data for replacement parts designed to keep the vehicles running. Instead, they just relied on their own past experiences and the contractor's word to set what they thought were correct price ranges, according to the Defense Department's internal inspector general.

The Humvees, officially called "High Mobility Multipurpose Wheeled Vehicle" and produced exclusively by South Bend, Ind. based AM General, have long been a staple of military transportation and have served in both Iraq and Afghanistan.

But that long history might have led contracting officials to be too complacent, the IG said, as they rarely checked how much they were paying, including not looking at sales or cost data before buying $563.2 million in repair parts.

"The problem is the incentives within government are what lead to this type of thing," said Veronique de Rugy, senior research fellow at the Mercatus Center for market studies at George Mason University. "You have people who are spending other people's money. There is almost no oversight."

For spending taxpayer money without checking to see if they got the best deal, the Pentagon's Defense Logistics Agency (DLA) wins the Golden Hammer, a weekly distinction from The Washington Times given to mark examples of fiscal waste, fraud and abuse.

"Before DLA Land and Maritime contracting officials procure these [Humvee] repair parts again, improved pricing practices are needed," the IG said in a report released last week.

The $26.3 million investigators are pointing to as waste came because officials misjudged "escalation rates" — markers used to increase the amount paid to contractors in order to adjust for inflation and other economic factors.

But the IG said DLA "applied escalation rates that exceeded U.S. Bureau of Labor Statistics market rates" that are used as the standard by the government.

DLA said they would improve their purchasing oversight, but disputed the IG's opinion that millions had been wasted.

"Although DLA did not concur with the additional payment finding, we have taken steps to strengthen pricing policy and guidance in focused areas such as price escalation and negotiation documentation," spokeswoman Michelle McCaskill told The Times.

The IG hasn't been completely satisfied however, and said DLA's calculation of escalation rates was still "insufficient." Investigators are concerned more waste might have occurred, and asked the agency to turn over nearly three years' worth of billing records for Humvees by May.

The Defense Department has had issues with purchases of spare parts before. In September, The Times reported that the Army bought $8 million worth of helicopter repair parts without first checking what was already in stock — and then discovered the parts weren't designed for the choppers they were trying to repair.

And in October, another Pentagon office was criticized for buying $230 million in spare parts for the Afghan National Army, losing that shipment, and having to reorder another $130 million in parts. In the end, officials could only verify that 10 percent of the parts were going to repair vehicles.

"If you could actually go after this kind of waste fraud and abuse, you could get somewhere, you would make sequestration cuts more palatable," Ms. de Rugy said, but warned that little will likely be done.

Lawmakers, she said, have a "blind spot" when it comes to defense spending, and never want to see the amount of money given to the Pentagon go down, even if it winds up being wasted.

"If the top line goes up, they're in favor of it. If the top line goes down, they're against it," Ms. de Rugy said. "And there's very little attention paid to the money that's spent underneath that line."

AM General spokesman Jeff Adams said the company provides spare parts in a "time-sensitive and efficient manner."

"AM General negotiated pricing with Defense Logistics Agency representatives on HMMWV spare parts precisely in accordance with regulations and utilizing best practices in the government contracting industry," he said. "The company has been recognized many times for performance excellence and is committed to dealing with its customers in a fair, honest and straight-forward manner."

Just because troops are being withdrawn from Afghanistan doesn't mean the demand for replacement parts is going to subside, said Dakota Wood, a retired Marine Corps lieutenant colonel who began his career as a motor transport officer working with Humvees.

"Whether the vehicles that the troops will be using remain in use or are brought back, they're still being driven and they're still being broken," said Mr. Wood, now the senior research fellow for defense programs at the Heritage Foundation, a conservative think-tank.

The vehicle itself isn't going anywhere.

"We've had Humvees for 30 years," Mr. Wood said. "It is the utility truck across the military."

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