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Boeing Sought $1 Billion-Plus It Didn't Deserve

POSTED: 04:51 PM ET, 06/16/2008 by Derek Kravitz

"Washington Watchdogs," a periodic feature of the Post's Investigations blog, looks at the findings of the federal government's official investigators.

The federal government overpaid Boeing between $300 million and $475 million in "economic price adjustment" charges on contracts to build three types of aircraft, according to a Department of Defense inspector general report.

An audit performed by the Defense Department's inspector general, released after a Freedom of Information Act request, shows that the Chicago-based aerospace company had originally sought an extra $1.9 billion for its $20.6 billion worth of contracts because of a clause allowing increases due to inflation and higher operating costs. Boeing and the government eventually negotiated the extra costs down to $566 million, but the auditors found that was still far in excess of Boeing's true cost increases. Boeing should receive only $90 million to $260 million extra, the audit found.

As a result of the audit's findings, the Pentagon has renegotiated Boeing's payment down to $272.3 million, the report said.

Boeing has contracts to build the Air Force's C-17 Globemaster III, the Navy's F/A-18 E/F Super Hornet and the Army's AH-64D Apache Longbow helicopter. All three contracts contain a clause that allows for inflation and cost increases through data provided annually by the Bureau of Labor Statistics.

The report says the Bureau of Labor Statistics allowed private companies to include contributions to pension funds as part of their growth in expenses. In Boeing's case, about $8 billion in pension contributions were included in error between 2003 and 2006, resulting in Boeing request for $1.9 billion to be added to the contracts, the auditors found.

Auditors also noted a potential conflict of interest in the BLS system. Boeing reimburses BLS for the costs of collecting and publishing its annual cost index through a contract with the Aerospace Industries Association. Boeing, McDonnell Douglas, BAE Systems and Northrop Grumman hired the association in the early 1990s to collect data for the index "because the companies realized that not all the costs were being recovered."

The report claims Boeing has become a "dominant force" in the collection of figures for the index.

The Bureau of Labor Statistics has defended its findings with investigators, according to the report, with officials saying the data was "consistent with established collection procedures."

--Derek Kravitz

By Derek Kravitz |  June 16, 2008; 4:51 PM ET Washington Watchdogs
Previous: Mystery Over Nuclear Blueprints Grows | Next: McClatchy Investigates U.S. Detention System


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