Senators from both parties want the Pentagon to investigate arms manufacturers for alleged price gouging.
U.S. Senators Call for Investigation into Alleged Price Gouging by Arms Manufacturers
Major arms manufacturers such as Lockheed Martin, Boeing, and Raytheon, as well as spare parts manufacturer TransDigm, have been accused of price gouging by U.S. senators. The senators, including two Democrats, two Republicans, and independent Sen. Bernie Sanders, are calling for a Department of Defense (DoD) investigation into these allegations.
The allegations of price gouging were brought to light by a recent CBS News “60 Minutes” report, which followed a six-month investigation. The report found that defense contractors were enjoying profit margins of up to 4,000 percent through overcharges, despite the Pentagon’s alleged price gouging.”>fixed-price contracts typically having profit margins of 12-15 percent.
Sens. Mike Braun (R-Ind.), Chuck Grassley (R-Iowa), Elizabeth Warren (D-Mass.), Ron Wyden (D-Ore.), and Bernie Sanders (I-Vt.) wrote a letter to Defense Secretary Lloyd Austin, calling for further investigation into these practices. “These companies have abused the trust government has placed in them, exploiting their position as sole suppliers for certain items to increase prices far above inflation or any reasonable profit margin,” the Senators wrote.
Why It Matters
The senators emphasized the importance of reining in price gouging in light of the $842-billion budget the DoD is requesting in fiscal year 2024—the largest U.S. defense budget in history. “Almost half of this budget will go to private contractors, underlining the importance of reining in this out-of-control price gouging,” the Senators wrote. “Dollars that are wasted on overpriced weapons or spare parts cannot be spent to counter adversaries or support service members.”
Examples of Price Gouging
The senators highlighted a previously redacted 2019 Pentagon Inspector General report on TransDigm’s contracts, finding that “only one part purchased under one contract was awarded with a reasonable profit of 11 percent,” while “the remaining 112 contracts had profit percentages ranging from 17 to 4,451 percent for 46 parts.”
The “60 Minutes” report detailed one instance in which U.S. Army Apache attack helicopters could not operate without a crucial valve. TransDigm had reportedly taken over the manufacturer of this key aircraft component, and subsequently raised its price by $747—an almost 40 percent increase.
The price gouging allegations also factor into the cost U.S. taxpayers are paying to support Ukrainian forces in their ongoing fight with Russia. The cost for a Stinger missile had risen to more than $400,000 during the Ukraine conflict, representing a seven-fold increase—even when accounting for inflation and improvements in the weapons systems.
Raytheon, Boeing, and Lockheed Martin have all played a part in the development of the Patriot missile defense system. Army contract negotiators said Raytheon had exaggerated the cost and hours it took to build the radar and ground equipment for the Patriot system, thus inflating its price.
It remains to be seen what the outcome of the DoD investigation will be, but it is clear that the issue of price gouging by arms manufacturers is a serious concern for U.S. senators and taxpayers alike.
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