The US Defense Department’s Inspector General has released a report this week after evaluating the Army Aviation and Missile Life Cycle Management Command (AMCOM) material purchases from Sikorsky.  The items concerned related to a contract where Sikorsky supports the Corpus Christi Army Depot (CCAD), where the oganisation was checking whether the partnership agreement effectively minimized the cost of direct materials to the depot.  Their report D-2011-104 addresses spare parts pricing problems.  A subsequent report will address other (as yet unspecified) contract concerns.

The report noted that AMCOM officials did not effectively negotiate prices for 28 of 46 noncompetitive spare parts reviewed because neither Sikorsky nor AMCOM officials performed adequate cost or price analyses of proposed subcontractor prices.  Additionally, Sikorsky also paid excessive prices to subcontractors (pass-through costs) and did not always provide the most current, complete, and accurate cost data (defective pricing). In addition, the CCAD/Sikorsky contract established excessive inflation rates that were not tied to an economic index.

Calculations pointed to Sikorsky over-charging the US Army by $11.8M (54% more – $34.7M versus $22.9M) than fair and reasonable prices for 28 parts.  Without some correction to those, the Army will pay excessive profits of around $16.6M over the remaining 2 years of the contract.  So far, Sikorsky has agreed to refund just $1M.

Two examples were given.  The Defence Logistics Agency had a standard price in 2011 for a particular rotor item of $1,536.65, and Sikorsky 2011 Unit Price for the same item was $7,814.88.  The report identified that the Army had overpaid by  $686,293 in 2008-10 and had the potential for a further $1,344,973 in 2011-12.

The second item was a Flush Door Ring – the DLA 2010 Standard Unit Price: $8.37 and Sikorsky was charging no less than $284.46 for the same item that year.  Army overspend in 2008-10 was given as $195,276 and a potential further overspend in 2011–2012 of $218,523

William P Johnson – HeliHub.com US correspondent