Department of Defense Audit Exposes Boeing’s Overpricing of C-17 Spare Parts - The Aviationist

In an interesting new report, the Department of Defense’s Office of Inspector General (DoD OIG) has shed light on significant issues surrounding the pricing of spare parts for the U.S. Air Force’s C-17 Globemaster III transport aircraft. The audit, prompted by a tip-off to the DoD Hotline, aimed to determine whether the U.S. Air Force had obtained fair and reasonable prices for essential spare parts under Boeing’s performance-based logistics contracts for the C-17. Findings from the report indicate notable overcharges, raising concerns about the effectiveness of internal controls in protecting taxpayer dollars and maintaining the operational readiness of this critical aircraft.

Since October 2011, the U.S. Air Force has relied on Boeing to support its C-17 fleet through the C-17 Globemaster III Integrated Sustainment Program (GISP), an initial 10-year, $11.8 billion contract for supply and maintenance. In 2021, a follow-on $23.8 billion contract known as the Globemaster III Sustainment (G3) contract extended these support services through 2031.

Under these contracts, Boeing has purchased the necessary spare parts for the C-17, with the Air Force reimbursing the company for these purchases. The DoD OIG’s audit sought to examine the pricing fairness within this arrangement, aiming to confirm whether the Air Force was paying reasonable costs for these crucial components.

Inspector General Robert P. Storch emphasized the importance of fair pricing, noting that without effective oversight, unnecessary overpayments on spare parts could severely limit the number of parts available for purchase within budget constraints, thereby impacting C-17 readiness. The report highlighted several key issues:

The report attributes these overpricing issues to several structural weaknesses within the Air Force’s contracting and procurement practices:

Moreover, the report identified a lack of clear guidance within the Department of Defense for contracting officers, specifically regarding verification of bills of materials before negotiation and review of invoices for compliance with allowable and reasonable costs.

The audit estimated that the Air Force overpaid nearly $1 million on just 12 types of spare parts across the GISP and G3 contracts from fiscal years 2018 through 2022. This figure, while troubling on its own, reflects a larger risk to the financial integrity of the Air Force’s procurement strategy. The DoD OIG noted that significant overpayments could limit the number of parts that Boeing is able to purchase within contract budgets, ultimately impacting the availability and readiness of the C-17 fleet for critical missions.

To address all the identified issues, the DoD OIG issued eight recommendations aimed at bolstering oversight and ensuring the Air Force achieves fair pricing on future purchases. These recommendations include:

Inspector General Storch underscored the importance of these recommendations, pointing out that implementing stronger internal controls will be essential for protecting taxpayer funds and ensuring the Air Force’s resources are used effectively. Without these measures, there is a risk that the Air Force could continue to overpay for spare parts, diminishing the financial efficiency of its logistics support and potentially undermining the readiness of the C-17 fleet.