The flap about overpriced spare parts and accessories for military systems is well into its second year, the controversy replenished periodically by fresh revelations. Among the more recent of the “horror stories,” as they have come to be called, is the one about the $7,622 hot-beverage unit bought by the Air force for the C-5A aircraft.
A great deal has been said already, much of it in this magazine, to place this matter in perspective. The Pentagon points out that nearly all of the horror stories have been discovered by the services themselves as part of their aggressive programs to find and correct overpricing. The Air Force, for example, was alerted to the pending procurement of the now-famous $916 navigator stool cap by its own Zero Overprice program, and the purchase was stopped.
Examined closely, many of the horror stories are what they seemed to be at first gasp. Consider the “$170 flashlight” that the New York Times compared scornfully with a $25 model from Montgomery Ward. In fact this is an emergency exit light for aircraft, designed to withstand high impact and to switch on automatically if primary power is lost. In the event of a crash, crews remove it from its mountings and use it to get themselves and passengers out of the wreckage. As for the $7,622 hot-beverage unit, the Air Force agrees that it is a clear case of overpricing, but even this horror story is slightly less horrible than the first reports depicted it. It is not a kitchen-quality coffee pot. It must have features that make it suitable and safe for use in flight. The airlines pay $3,046 for comparable in-flight beverage units; from now on, so will the Air Force.
The causes of overpricing have been explained again and again. The principal one is too few people, having too little data, taking shortcuts to get the job done. They place orders for small quantities with firms not equipped to produce the items economically. Formula pricing techniques have been used to cost out parts statistically, estimating some high and others low and seeking to set a fair price on a big lot of spares without working each item independently.
One point, however, has not been addressed sufficiently: Just how big a deal is all this, anyway
USAF’s Management Analysis Group estimates that the Air Force is vulnerable to overpricing on about six percent of the spare parts it buys. That amounts to a danger zone of $300 million a year, some subset of which is actual overpricing. Sine 1979, USAF’s Zero Overprice program has investigated 27,000 cases and found overpricing in eight percent of them. A Defense Department audit of 2,300 parts selected at random found that thirty-six percent of them were overpriced but that the overpriced parts represented only six percent of the dollar value of the sample. Overpricing is concentrated among low-value parts.
The services are correct in treating the problem as a reasonable big deal. While dollars lost to overpricing are barely a blip in the context of the overall defense budget, the sums are still significant. Furthermore, public confidence in the armed forces has been damaged by the horror stories. The fact that USAF’s Zero Overpriced program has been triggered 27,000 times indicates that a great many people are alert and concerned. At least a few members of the choir seem to have slept through the sermons, through. Earlier this year, an airman got the idiot treatment from the bureaucracy when he attempted to report a case of overpricing. The Air Force looked very bad when the story surfaced.
On the other hand, the horror story groupies might ask how well they serve the nation when they force a reaction that’s so out of proportion to the problem. Perceptions become more important than realities. Thousands of people and nobody knows how many man-hours are diverted to the spare-parts problem. Attention is distracted from defense affairs of greater consequence. If and when this distraction leads to trouble, don’t look for the horror story groupies to step forward for any of the blame. One wonders about the sincerity of their interest in efficient defense procurement and if their real objective is to sabotage defense spending regardless of efficiency.
Eliminating horror stories altogether may be impossible. The Air Force alone manages 834,000 different kinds of spare parts. How much effort and what sort of data system would be required to micromanage them all When does the cost of the solution exceed the cost of the problem What camels do we swallow, unnoticed, while we are busy straining at gnats
Stretch-out from six years to nine on procurement of the original increment of F-15 aircraft added $2 billion to the cost of that acquisition. That’s a real horror story, but it never caught on.
The standard explanation is that while the citizen is confused by big system procurements, he understands an overpriced claw hammer instantly. An alternate explanation may be that the citizen has had a steady diet of horror-story melodrama from those upon whom he relies for information. More responsibly informed, the public might recognize a little big deal when it sees one.