The Pentagon is setting new requirements for the TransDigm Group after the Defense Department inspector general found the company was reaping excessive profits.
A June 14 memo from Kim Herrington, acting principal director for defense pricing and contracting, says the IG found TransDigm and its subsidiaries are "engaging in a pervasive strategy of negotiating excessive profits on contracts with the department for spare parts."
Last month, members of Congress on both sides of the aisle publicly criticized TransDigm and discussed ways to limit the company's profitability.
Herrington's memo notes that federal acquisition regulations say adequate price competition exists if two or more responsible, independent offerors submit bids that satisfy the government's requirement. Indeed, an acquisition can even comply with only one offeror if that offeror independently establishes its proposed price, the document adds.
"However, the definition of adequate price competition does not address the fact that a sole manufacturer (such as TransDigm) participating in a competition can effectively control the competition by its ability to establish the material pricing for all other offerors," the memo reads. "In these situations, the Department does not consider such rigged competitions to be adequate price competition, based on independently submitted offers."
The memo was sent to the services' top acquisition officials, directors of the defense agencies, directors of DOD field activities, the DOD IG as well as the leaders of U.S. Cyber Command, U.S. Special Operations Command and U.S. Transportation Command.
Herrington writes that "for all procurement actions not yet awarded as of the date of this memorandum, unless the prices agreed upon are based on adequate price competition or are set by law or regulation, contracting officers are directed to require the submission of uncertified cost or pricing data to support prices proposed by TransDigm and its subsidiaries."
The memo then includes a list of all TransDigm subsidiaries.
In a statement, TransDigm said it "did nothing in contravention of the federal acquisition laws and regulations with regard to pricing."
"We remain committed to conducting business within the framework of applicable laws and regulations," the company added. "The Federal Acquisition Regulations always permit the government to seek uncertified cost or pricing data from its suppliers and we respect the DOD’s right to do so."
Corbin Evans of the National Defense Industrial Association, an industry group, told Inside Defense the memo is an "appropriate response to a bad actor."
The organization has opposed an amendment in the House version of the fiscal year 2020 defense authorization bill that would require companies to disclose cost or pricing data for contract proposals under $2 million.
"Expanding the requirement for this data will be a burden for both industry and government," the industry group said in a statement. "Small businesses, surviving on contracts that are mostly below the [Truth in Negotiation Act] threshold, will bear the brunt of this burden."