[Congressional Record Volume 165, Number 81 (Wednesday, May 15, 2019)]
[Senate]
[Pages S2845-S2847]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                           Pentagon Oversight

  Mr. GRASSLEY. Mr. President, I come to the floor today to shed light 
on yet another really dark cloud that is hanging over our Department of 
Defense. In fact, for decades, a dark cloud of fiscal mismanagement has 
loomed large over the Pentagon. During my very first term here in the 
Senate, I began my quest to bring fiscal accountability to the 
Pentagon. Four decades later, I am still keeping tabs on the money 
trail. That money trail is sometimes difficult to follow. Back then, it 
was a bit like David taking on Goliath.
  We all know that the United States of America has the strongest and 
mightiest military in the world. I am thankful for that because a 
strong military is not meant to fight a war; it is meant to maintain 
the peace. We haven't had a world war III since we have had a strong 
military.
  Our brave men and women who serve in the U.S. Armed Forces protect 
our shores at home and abroad to keep us safe and to protect the 
blessings of liberty for our children and grandchildren. That is 
exactly why it is so very important to keep check on the Pentagon's 
ledgers, to help make sure that every tax dollar assigned to the 
Nation's defense is actually spent effectively and not squandered on 
waste, fraud, and abuse.
  With the help of brave whistleblowers who stuck their necks out to 
``commit truth,'' I stuck my neck out during the Reagan administration. 
That is when I learned about the Pentagon's little shop of price 
horrors.
  Of course, ripping off the taxpayers started during the Revolutionary 
War, when contractors sold rotten meat to the Continental Army, and it 
continued during the Civil War, when profiteers sold ammunition filled 
with sawdust and shoddy shoes and horses to the Union Army. It looks 
like it continues to this day.
  Back in 1985, Americans will recall, the Defense Department was 
shelling out vast amounts of taxpayer dollars for spare parts. Remember 
back then the $450 hammers and the $640 toilet seats? That sounds like 
a real bargain compared to the more recent wasteful spending at the 
Pentagon, such as the $1,280 coffee mug and the $14,000 toilet seat 
lid. Obviously, the cost of waste is getting a whole lot more expensive 
for our taxpayers.
  Back in the 1980s, I fought to win a spending freeze on unchecked 
spending sprees. Misspending and overspending were riddling the defense 
budget at the expense of the American taxpayer.
  Military readiness drives the spending decisions that Members of 
Congress make when we cast our votes on the defense budget. Our 
constituents expect their elected representatives to make sure that the 
moms and dads, sons and daughters, brothers and sisters who are serving 
our country in uniform are well equipped with the best resources money 
can buy. But they also expect their elected representatives to make 
sure their hard-earned dollars that are withheld from every paycheck--
their tax dollars--aren't being ripped off by greedy corporations, like 
TransDigm Group, Inc., which I will speak about in a moment.
  That is why I conduct robust oversight of defense spending. As a 
taxpayer watchdog--and all of us are supposed to be watchdogs, and all 
of us would claim to be watchdogs--it is our

[[Page S2846]]

responsibility and my responsibility to make sure every defense dollar 
is spent as effectively and as efficiently as possible. Every dollar 
lost to waste, fraud, and abuse harms military readiness, and it also 
lines the pockets of somebody else at taxpayers' expense.
  Trimming the fat in a bloated bureaucracy won't happen in the 
shadows. There is no magic wand to wave either. If there is one thing I 
have learned in my years of oversight, transparency matters. 
Transparency brings accountability.
  Every time I come to the floor to talk about the fiscal mess at the 
Pentagon, I get a bit of deja vu. Earlier, I said my fraud-fighting 
efforts in the 1980s could be compared to David v. Goliath. Now let's 
fast-forward to this year, 2019. I am still here working as hard as 
ever to do away with wrongdoing and extract fiscal accountability at 
the Pentagon. Today, some might say that job is like the one performed 
by the famous character in Greek mythology who was destined to roll 
that heavy stone up the hill and to do it from then until eternity.
  Congressional oversight can be extremely tedious, and it can be time-
consuming, but, as I like to remind each of the other 534 Members of 
Congress, it is essential to our country that we exercise this system 
of checks and balances. Without it, the dark fiscal cloud looming over 
the Pentagon would swell bigger and bigger and bigger.
  Oversight work may feel like an uphill climb, but oversight is not 
futile in the end. That is why I keep my shoulder to the wheel--to hold 
people at the Pentagon accountable, to protect taxpayers, and most 
importantly, when it comes to a defense dollar, to make sure we have 
our military readiness.
  Right now, I am here today to share some new details about the broken 
record of fiscal mismanagement at the Department of Defense.
  No matter how high I turn up the volume, the overdogs at the Pentagon 
remain tone deaf to fiscal integrity. Consider the recent report by the 
Department of Defense Office of Inspector General. It is called 
``Review of Parts Purchased From TransDigm Group Inc.''
  First, I want to compliment Senator Warren and two Representatives, 
Ro Khanna and Tim Ryan, for getting the ball rolling with their request 
asking the inspector general to look into the contract--this 
contractor's pricing structure. We need all hands on deck in Congress 
to conduct oversight, so I thank these other Members of Congress just 
named.
  After digging into the details, I can only conclude that the Pentagon 
is still, after all these years, stuck on autopilot. No one on board in 
the Pentagon's mother ship seems to bother to steer its ``fiscal ship'' 
into shape. Fiscal integrity somehow got lost in the spare parts horror 
story I am about to tell. In fact, I was more than dismayed with the 
response from the internal watchdogs at the DOD IG office. Their team 
wrote the report, and yet the inspector general leadership team seemed 
to show no urgency whatsoever to fix the problem they described.
  This tells me I also need to keep a tight leash on the internal 
watchdogs leading the Department of Defense inspector general's office. 
Their February report exposes a galactic price gouging, colossal 
ripple, and out-of-this-world waste. It reads like a sequel to the same 
financial shenanigans that have turned the Pentagon into a taxpayer 
money pit. Change out the name of the contractor, inflate the charges, 
submit the invoice and voila--the American taxpayer is on the hook for 
another fixed-price, sole source contract.
  For this report, the inspector general examined one contractor, 
TransDigm Group. In total, the inspector general analyzed 113 contracts 
between January 2015 and January 2017. They reviewed 47 spare parts the 
Department of Defense purchased from this contractor. In just those 2 
years, the inspector general found TransDigm overcharged the Pentagon 
by $16-1/10th million out of a total of $29-7/10th million in 
contracts.
  The reasonable profit threshold is considered by the Department of 
Defense to be 15 percent or below. The IG found that TransDigm earned 
excess profits on 46 of the 47 parts sold to the Defense Department.
  On 17 of those parts, TransDigm earned more than a 1,000-percent 
profit. Remarkably, the highest profit percentage was 4,436 percent.
  It is obvious to our taxpayers that that is a fleecing of the 
American taxpayer. Pulling the wool over the eyes of Congress and the 
taxpayers will only stop with transparency--which transparency will 
bring accountability.
  So that is why I am here today. Just think for a minute about the big 
picture. This report is just one snapshot of a much larger problem. It 
is kind of a spit in the ocean when you consider the enormous $716 
billion defense budget. Just imagine the boatloads of bloat elsewhere 
in the bureaucracy. The Department of Defense is obligated under 
Federal law and under regulations to uphold basic measures of fiscal 
integrity.
  So where do we go from here? The inspector general made just a few 
paltry recommendations. For starters, it directed contracting officers 
to request voluntary refunds for excess profits. Guess the chances of 
getting voluntary refunds. Let me suggest that I would not advise 
taxpayers to hold their breath on a voluntary refund. The inspector's 
general recommendations, then, have no teeth. Their recommendations are 
insufficient. What is worse, the inspector general leadership team 
claims no single Department of Defense official is responsible for this 
price gouging that goes on.
  So let me repeat: The inspector general leadership team, the internal 
watchdog for fiscal integrity and compliance at the Department of 
Defense, is effectively saying something like this: No one person at 
the Department of Defense can be held accountable for waste, fraud, and 
abuse of taxpayers' money. Obviously, to the taxpayers listening or 
anybody else, this illustrates a cavalier attitude toward taxpayer 
money that former Secretary of Defense James Mattis sought to 
extinguish. By the way, I wrote him a note, complimenting him on some 
statements he made about taking care of some of these problems.
  The decades-long odyssey of misspending at the Pentagon keeps going 
around and around and around. That is why--the way I see it--the 
Department of Defense has a fundamental responsibility to uphold fiscal 
integrity. After reviewing the IG report and meeting with its auditing 
team and the Department of Defense pricing czar, I have reached three 
conclusions. No. 1, fiscal control at the Department of Defense is 
AWOL. The Pentagon will never clean up its books if it cannot properly 
track the money trail and connect the dots.
  Consider why the Department of Defense contracting officers were 
unable to even certify if a profit was ``fair and reasonable.'' Do you 
know why? It was because they could not obtain critical cost data at 
the company TransDigm. In the most egregious case--that case I 
mentioned where there was a 4,436-percent profit margin for just one 
spare part--the contracting officer--you will not believe this--
certified that the price was fair and reasonable. There is something 
very, very wrong about that procedure. A whopping 4,000-percent profit 
margin for a spare part doesn't square with our midwestern commonsense 
standard.

  No. 2, the leadership team at the IG office has exhibited an alarming 
hands-off approach toward stopping waste, fraud, and abuse. The lack of 
urgency and the failure to hold anyone accountable is very revealing. 
It sends a signal throughout the chain of command: Just keep on signing 
contracts; keep ordering spare parts; keep up business as usual. 
Lastly, it shows that no one will be held accountable for price 
gouging.
  No. 3, the pattern of price gouging at TransDigm and its subsidiaries 
has gone unimpeded for decades. It has amassed exclusive rights to sell 
these spare parts to the Pentagon. In fact, the Defense Department 
accounted for 34 percent of its sales in 2017. TransDigm exploited its 
business model and took advantage of its sole source position to 
leverage higher prices.
  Now, as a former chairman of the Senate Judiciary Committee--and 
still a member of that committee--I have examined anticompetitive 
business practices over a long period of time, including those in 
agriculture and the pharmaceutical sectors of our economy. It is very 
concerning to me when

[[Page S2847]]

contracting arrangements, like those between TransDigm and its 100 
subsidiaries, are effectively a monopoly. It is like an octopus with 
100 arms putting the squeeze on the Pentagon. Effectively, the Pentagon 
is at the mercy of TransDigm--which owns the intellectual property--to 
buy the spare parts it needs to build the Nation's critical weapon 
systems. That leaves the American taxpayer on the hook for exorbitant 
price gouging.
  The inspector general report found that TransDigm's choke hold has 
added up to tens of millions of dollars overcharging to the taxpayer. 
This is a good time to refresh people's memories about my legislative 
and oversight work with anticompetitive business practices. It is 
pretty simple. Monopolies invite government regulation. If that is the 
road TransDigm wants to continue following, I am here to deliver a 
message. The jig is up on this cozy relationship. The buck stops here.
  I have written a letter to Acting Secretary Shanahan about these 
flawed contracts and failures to identify price gouging. I have asked 
him to make measurable recommendations on how to restore accountability 
and end this price gouging. One thing is crystal clear. Transparency 
and competition are MIA--missing in action--when the Pentagon buys 
spare parts from TransDigm and its subsidiaries. Now, thank God the 
other body, the House of Representatives, its Committee on Oversight 
and Reform, called an oversight hearing this week to examine TransDigm 
and its price-gouging shenanigans.
  Congress has a constitutional duty of oversight to keep check on 
taxpayers' money and hold government accountable. As I said earlier, we 
need all hands on deck to root out wasteful spending.
  Once again, we are back to square one. The Pentagon has flunked a 
fundamental benchmark of fiscal responsibility and stewardship. It is 
one of Washington's worst kept secrets. Year after year, Congress 
shovels more money into the Pentagon coffers to ensure we maintain the 
best military in the world, and I express my support for the military. 
I express my support that a strong department of national defense is 
also a strong keeper of the peace because we might not be challenged, 
and we are going to be able to help keep peace around the world, but 
year after year, the Pentagon squanders hundreds of millions of 
taxpayer dollars. Some people at the Pentagon seem to think that paying 
$16 million in excess profits somehow seems to be small potatoes.
  In my letter to the Acting Defense Secretary, I made it clear that I 
am not one of those people. I have asked him to answer a direct 
question. That question is this: What specific steps is he going to 
take to stop the profiteers from pilfering taxpayer money?
  Contracts like I have described today between TransDigm and the 
Pentagon are shortchanging the troops, fleecing the taxpayers, and 
tarnishing its reputation.
  As Justice Brandeis said, ``sunshine is said to be the best of 
disinfectants.'' So I am here today to pull back the curtains on the 
TransDigm audit. The American people need the sun to shine in on price 
gouging at the Pentagon so we can root out the wasteful spending here 
and elsewhere.
  Transparency is the best ammunition that we have to chase away the 
dark fiscal crowd looming along the shores of the Potomac.