Investigation: Army paid exorbitant mark-up on parts it already had

A recent report claims the company that builds the Army's Black Hawk helicopters, Sikorsky, has overcharged the Army.

Story highlights

  • Helicopter parts company made $1 million from U.S. Army, report finds
  • The company, Sikorsky Aircraft, disagrees with the report's conclusion
  • The Pentagon Inspector General recommends that Army seek refunds from Sikorsky
Two recent reports from the Pentagon's inspector general criticize the U.S. Army and Sikorsky Aircraft Corporation for the way spare helicopter parts were bought and for what prices.
The most recent report, released Thursday, found that the Army's Aviation and Missile Life Cycle Management Command "did not effectively use (Department of Defense) inventory before procuring the same items from Sikorsky."
Sikorsky is the company that designed and builds the Army's Black Hawk helicopters, the work horse of Army aviation.
The IG investigation found the Pentagon's Defense Logistics Agency has "sufficient inventory to satisfy annual contract requirements for 3,267 items" but still the Army bought the items from Sikorsky, paying $7.6 million, "or 85.1% higher than the DLA price."
That same report said that Sikorsky would buy parts from the DLA and turn around and sell them to the U.S. Army for a profit. The company made nearly $1 million that way, according to the inspector general.
"Sikorsky continues to disagree with the vast majority of the IG's subjective conclusions and recommendations. We have been cooperating fully with the DoD IG," Paul Jackson, communications director for Sikorsky, said in an e-mailed statement.
He added: "It is important to note that, of the more than 7,000 parts covered under this contract, only a handful were found to have discrepancies. Sikorsky operates under a culture of full compliance and continuous improvement."
The IG recommendations for dealing with the problems it found include seeking refunds from Sikorsky totaling more than $12 million.
The Army, which concurred with many of the IG's findings, did not agree with asking for a refund, according to an Army response included in the full report and shared with CNN by Sikorsky public relations.
In the response, the Army said savings achieved by Sikorsky through supplier negotiations "are passed to the government through both production and spares contracts." The Army further points out that "the contractor assumes the risk for price increases in a firm-fixed-price environment."
A September report from the IG focused on the Army and its failure to "effectively negotiate prices" for spare parts. The report found that the Army paid Sikorsky more than $34 million for helicopter parts that it could have bought from other sources for just under $23 million.
The Army agency responsible for buying parts replied to the September report in part saying it would focus more closely on parts price negotiations.