Pentagon Parts Supplier Falls Under Watchdog's Scrutiny Again

A large corporate supplier to the Pentagon whose pricing practices have already prompted controversy is again being investigated by the Defense Department’s Office of Inspector General.

Cleveland-based TransDigm, a diversified provider of aircraft and related parts, became the subject of a tension-filled House hearing in May after an IG investigation of 113 of its Defense Department contracts from January 2015-2017 affecting 47 parts coordinated by the Defense Logistics Agency calculated that the company overcharged Uncle Sam by $16.1 million on a total of $29.7 million.

The executives later agreed to reimburse the Pentagon, but lawmakers and critics of defense spending continued to portray TransDigm as a poster child for Defense waste.

On Monday, Glenn Fine, the principal deputy Defense inspector general serving as acting IG, informed Pentagon acquisition brass and service inspectors general that: “We plan to begin the subject audit in July 2019. We are conducting this audit in response to a congressional request. Our objective is to determine whether TransDigm Group Inc.’s business model affects the DoD’s ability to pay fair and reasonable prices for spare parts. We will consider suggestions from management on additional or revised objectives.”

That move drew praise from Sen. Chuck Grassley, R-Iowa, who had long followed the drama as part of his agenda for reducing waste, fraud and abuse. 

“As the old saying goes, where there’s smoke, there’s fire,” Grassley said in a Monday statement. “And there’s a lot of smoke coming from TransDigm. I’m glad to see the DoD IG is re-opening its investigation into this company to root out any additional waste, fraud and abuse that squanders taxpayer dollars and shortchanges our men and women in uniform.”

Grassley has also asked the Defense Department for broader information on how pricing agreements are arrived at, including Defense’s ongoing effort to acquire more cost data from contractors suspected of gouging.

TransDigm did not respond to Government Executive inquiries on Tuesday. The company’s second-quarter earnings report released in May showed net sales of $1.2 billion, up 28.2% from $933.1 million.

“Our highly consistent business model, continues to create significant intrinsic value for our shareholders,” said its annual report for fiscal 2018. “Since our IPO in 2006, total enterprise value has grown at a compound annual rate of more than 30%. Steady growth in passenger traffic, our strong position on diverse and growing platforms, and significant opportunities to complete accretive acquisitions give us confidence that we can continue our onward and upward trajectory of profitable performance.”