WASHINGTON Oct 14 Boeing Co on Monday
rebutted a Pentagon's inspector general report that said the
company overcharged the U.S. Army by up to $16.6 million on a
$4.4 billion helicopter contract and said it was still waiting
to receive the final report under a Freedom of Information Act
The report said Boeing overestimated how many new parts it
would need to build the 181 CH-47F Chinook helicopters under the
five-year contract, and then installed largely used parts,
resulting in overcharges of $7.4 million to $16.6 million.
The inspector general's report faulted the Army for not
overseeing the contract properly, and noted it lacked a process
to doublecheck Boeing's estimates and track the number of used
or new parts that were actually installed.
"Boeing recognizes the important work that the Department of
Defense inspector general performs. However, with regard to the
audit of the CH-47F multiyear contract, we disagree with the
IG's conclusions," said Boeing spokesman Damien Mills.
Mills said Boeing believed it had complied with government
contracting policies under the first firm, fixed-price,
five-year contract for the CH-47F helicopters, which called for
Boeing to build 109 new helicopters and 72 remanufactured ones,
using parts from helicopters returning from use in overseas
wars, where possible.
Boeing adjusted its proposal for a second five-year purchase
of up to 215 additional CH-47F helicopters to reflect the
greater than expected use of salvaged parts on the first
contract, he said. The Army awarded Boeing a $4 billion contract
for 177 more CH-47 helicopters on June 10.
The report said its audit of the first acquisition agreement
prompted Army officials to revisit the assumptions of the second
multiyear agreement, and reduce the amount of new parts to be
ordered for the helicopters by $36.8 million. It said it had
identified potential overcharges of $10.6 million to $19.1
million, the report said.
In its response to the report, the Army said it had
negotiated a $15 million savings from Boeing's proposal for the
second five-year agreement to reflect lower use of new parts.
Bloomberg first reported the Pentagon's inspector general
report on Monday and posted a copy on its website.
Army officials could not be reached due to the federal
holiday, and a partial government shutdown.
Boeing's Mills said the company saw and responded to a draft
of the report in April. The company filed a request for the
final version, but had not yet received it.
"The request at this time remains unfulfilled," Mills said.
He said the government's policy encouraged greater use of
parts from used helicopters to reduce waste.
Industry experts said fixed price contracts were carefully
negotiated between companies and the government with each side
taking on certain risks. For instance, if Boeing had
underestimated the amount of new parts required, it would have
had to bear the extra cost on its own.
The report recommended that Boeing should be required to
clearly identify the amount of new parts "contingencies"
included in the second multiyear purchase agreement. It also
faulted Boeing for being unable to track installation of parts
on a specific remanufactured helicopter.
The report also called for the Army to better manage
government-owned parts at a private facility, instead of relying
on Boeing to oversee the work there.
In a response to the report, the Army said better tracking
was now being implemented. It also noted any unused parts left
at the end of the contract would revert to the Army.