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Oversight Committee Calls on TransDigm to Refund $21 Million to Taxpayers

Washington, D.C. (Jan. 19, 2022) – Today, Rep. Carolyn B. Maloney, Chairwoman of the Committee on Oversight and Reform, held a hearing examining the results of an audit by the Department of Defense Office of Inspector General (DOD OIG), which found that a defense contractor, TransDigm Group Inc., has received nearly $21 million in excess profits on numerous contracts by acquiring companies with sole-source contracts for spare parts needed by the military and then raising prices dramatically. 

 

Ahead of the hearing, Chairwoman Maloney released information from former executives and employees and internal documents highlighting TransDigm Group Inc.’s tactics to price gouge DOD for mission-critical spare parts for the military, including limiting competition to create a monopoly, concealing cost data from government contracting officers, and avoiding long-term agreements. 

 

During her opening statement, Chairwoman Maloney announced the release of a discussion draft of new legislation called the Fair Pricing with Cost Transparency Act to ensure the government is paying a fair price on products and services from contractors like TransDigm. 

 

The Committee heard testimony from Theresa S. Hull, Deputy Inspector General at DOD;  John Tenaglia, Acting Principal Deputy Assistant Secretary of Defense for Acquisition and Principal Director, Defense Pricing and Contracting at DOD;  Kevin Stein, Chief Executive Officer of TransDigm; and Nicholas Howley, Founder and Executive Chairman of TransDigm.

 

Members demanded that TransDigm refund the $20.8 million in excess profit identified by the Inspector General.

 

  • In Chairwoman Maloney’s closing statement, she said:  “We expect TransDigm to pay back the outrageous excess profits.  All $20.8 million should be repaid.  It received this money at the expense of our warfighters and American taxpayers.  We expect you to repay this money to the taxpayers.”
  • Rep. Khanna stated during his questioning:  “I’ll remind this Committee that we had a bipartisan hearing in 2019 and calls on both the Democratic and Republican side to have TransDigm reimburse the federal government $16.1 million.  They did the right thing then.  They must reimburse the government at least $20.8 million.”
  • While addressing Dr. Stein and Mr. Howley, Rep. Tlaib stated:  “At the time when American families were and still are struggling with the financial burden of the pandemic, TransDigm paid the two executives here around $90 million, while at the same time laying off, furloughing, cutting the salaries of its other employees.”
  • TransDigm’s CEO Kevin Stein stated:  “if we find that TransDigm made a mistake in any of our contracting, we will gladly pay money back.”
  • Mr. Tenaglia confirmed that DOD was seeking refunds from TransDigm, but testified that the “the refund has not been received as of yet”

 

Members and witnesses outlined tactics TransDigm has used over the past fifteen years to price-gouge DOD on spare parts that are needed by the warfighter. 

  • In response to questioning from Rep. Sessions, Mr. Tenaglia responded: “The more we pay unnecessarily, the less capability we can deliver.”
  • Rep. Porter quoted TransDigm training documents directing staff to “provide the minimum amount of information to the government.”  She also highlighted a TransDigm email about a 2018 contract: “We don’t have to give up a dime.  Your salesperson said, I’m just full of BS and they—being the DOD and taxpayers—took the bait.”  She urged Mr. Howley to enforce the company’s “code of business ethics and conduct.”
  • TransDigm CEO Kevin Stein admitted that his company had refused more than twenty requests from DOD contracting officers to provide cost data in order to determine whether TransDigm’s proposed prices were fair and reasonable.

 

Members highlighted on a bipartisan basis the need for DOD to take action to prevent future abuses.

 

  • In asking Mr. Tenaglia about DOD’s ability to obtain intellectual property rights for sole-source contracts for spare parts, Rep. Foxx said:  “I think this is a big loophole that we have here that could save the American taxpayers billions and billions of dollars” and “we are spending way too much money because you sign these sole-source contracts and other companies could be providing the parts a lot less expensively if you were to get that intellectual property.”  
  • In a statement submitted for the record, Senator Chuck Grassley highlighted TransDigm’s “egregious price-gouging” and stated that “DOD has the tools to enact change within the Defense Federal Acquisition Regulation (DFAR) to potentially address some of these concerns.”

 

Members and witnesses agreed that reforms like Chairwoman Maloney’s Fair Pricing with Cost Transparency Act are needed to prevent contractors like TransDigm from taking advantage of taxpayers.

 

  • Ms. Hull testified:  “Without legislative changes, the DOD will continue to be unable to perform adequate price-reasonableness determinations, and the other price-analysis methods are not always effective in identifying excessive prices.”
  • Mr. Tenaglia stated in response to questioning from Chairwoman Maloney: “I believe access to cost data would give our contracting officers a better chance to negotiate fair and reasonable prices.”
  • In response to questioning from Rep. Khanna, Ms. Hull stated:  “Yes, I agree that when a contracting officer is unable to determine a fair and reasonable price and asks the contractor, especially in a sole-source environment, they should obtain the data that they request.”

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