The U.S. Air Force’s contracting practices are under scrutiny following a Department of Defense (DOD) inspector general’s audit alleging significant markups on parts for Boeing C-17 Globemaster III aircraft.
The Air Force awarded Boeing a 10-year, $11.8 billion contract in 2011 for the C-17 Globemaster III Integrated Sustainment Program (GISP), followed by a $23.8 billion contract in 2021 to continue C-17 support through 2031, covering spare parts procurement and reimbursement, the report noted.
According to the audit, the Air Force was allegedly charged more than 80 times the commercial cost for items, including basic soap dispensers, adding nearly $1 million in potentially avoidable costs over the last several years.“The Air Force needs to establish and implement more effective internal controls to help prevent overpaying for spare parts for the remainder of this contract, which continues through 2031,” Inspector General Robert P. Storch said in a press release alongside the report. “Significant overpayments for spare parts may reduce the number of spare parts that Boeing can purchase on the contract, potentially reducing C-17 readiness worldwide.”
The audit stemmed from a Defense Department hotline complaint alleging Boeing overcharged for a soap dispenser. The investigation concluded that the Air Force paid Boeing a 7,943 percent markup on lavatory soap dispensers, totaling an overpayment of $149,072, according to the report.
The report stated that “the overall function of these soap dispensers is identical, whether used in a residential kitchen or bathroom, commercial restaurant bathrooms, or in an aircraft lavatory.”
In addition to the soap dispensers, the audit also alleged a 3,556 percent markup for pressure transmitters and an 833 percent markup for retaining bands, leading to a cumulative overpayment of nearly $1 million across 12 spare parts.
The audit assessed a sample of 46 spare parts purchased by Boeing from 2018 to 2022. Based on its findings, it alleged that for 26 percent of these parts, accounting for $4.3 million in value, the Air Force paid prices well above commercially available rates.
The DOD inspector general’s office attributed the inflated costs to several oversight lapses, including failure to validate data accuracy during contract negotiation, lack of contract surveillance for price changes, and limited review of invoices.
The report concluded that contracting officers saw invoices for the first time only upon request during the audit, highlighting a lack of regular checks to ensure the prices met fair and reasonable standards.
The inspector general underscored that without stronger controls in place, overpayments alleged in the report could continue under the C-17 performance-based logistics contract, which extends through 2031, affecting military readiness.
The report recommended eight corrective actions, primarily directed toward the commander of the Air Force Life Cycle Management Center (AFLCMC), to mitigate future risks. AFLCMC is responsible for Air Force weaponry system acquisitions.
Recommendations include requiring the C-17 contracting officer to review spare parts prices regularly, flagging price increases above 25 percent, and obtaining justification for significant price hikes from Boeing.
The inspector general’s office will monitor the Air Force’s efforts to address and implement the recommendations, to ensure alignment with federal acquisition regulation standards.
Boeing’s Response
In a statement, Boeing said that the audit’s comparisons overlook the specific requirements for military-grade components, which differ from commercial standards.“We are reviewing the report, which appears to be based on an inapt comparison of the prices paid for parts that meet military specifications and designs versus basic commercial items that would not be qualified or approved for use on the C-17,” Boeing spokeswoman Deborah VanNierop said. “We will continue to work with the [Office of the Inspector General] and the U.S. Air Force to provide a detailed written response to the report in the coming days.”
