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Pentagon's spending practices come under fire at hearing

WASHINGTON—Members of the House Armed Services Committee on Wednesday called Pentagon purchasing agents "incompetent" for paying $20 apiece for plastic ice cube trays as top military buyers conceded that they didn't require vendors to keep their prices down.

A Knight Ridder investigation found that the ice trays—among 122 separate food service items—were bought by the Department of Defense under a special contracting program that has cost the Pentagon 20 percent more than past purchases.

Instead of obtaining competitive bids for individual purchases or buying directly from the manufacturers, the Defense Logistics Agency (DLA) created what it calls a prime vendor program, which encourages military bases to make purchases through a handful of favored firms. These middlemen tack on additional fees to complete the transactions.

Knight Ridder's investigation spurred Wednesday's hearing and sparked bipartisan criticism of the spending practices. A second hearing is planned later this month.

Vice Adm. Keith W. Lippert, director of the DLA, told the committee that his agency will look into requiring the prime vendors to be more economical. Recently, the Pentagon instituted more audits on food service equipment bills to see if taxpayers are being overcharged. He said his agency has asked for a few refunds, but he wouldn't give further details.

Lippert said the newest round of contracts this June reflected the Pentagon's renewed interest in low prices—but that was disputed by a San Diego vendor. Jeff Harston, president of Commercial and Marine Products Corp., said DLA officials told him this summer that "price doesn't matter."

Lippert's assurances weren't enough for angry congressmen.

"This is a real slap in the face to the guy making $13,000 a year who is engaged in a firefight in Ramadi," committee Chairman Duncan Hunter, R-Calif., told Pentagon purchasing chiefs. "A fairly large amount of incompetence is embedded into the system."

Rep. Robin Hayes, R-N.C. said, "A wall of shame would be appropriate."

In the middle of the meeting, a congressional aide wheeled a 34-inch-tall steel gray refrigerator into the hearing room. Those in attendance giggled when the congressmen revealed that the refrigerator cost the Pentagon $22,797.

"That looks like it costs $99.99 at Lowe's," said Rep. Joe Wilson, R-S.C.

The Pentagon also spent $32,642.50 apiece for nine other types of small refrigerators that the manufacturer said it sells for $17,267 each. However, Lankford Sysco, the Maryland prime vendor that sold the refrigerators to the Pentagon, said it paid $29,475 for each refrigerator.

Lankford Sysco also sold the ice cube trays to the Pentagon. It said in a written statement Wednesday that the size of that order—two trays—added to its high cost. The company said it paid $12.50 for each tray and $8 apiece to ship them to the Pentagon's supply shop in Pennsylvania.

Lippert defended the prime vendor program as "providing high quality products at the lowest possible total cost to the taxpayer." But he added: "We made some errors in day-to-day execution of business."

Lippert said the new provisions "will significantly reduce, if not completely eliminate, any vulnerability to overpricing."

But even with the changes, Harston of Commercial and Marine Products said the DLA doesn't seem to be worrying about the prices it's charged.

After Harston failed in his bid to be a prime vendor this year, he and DLA officials critiqued his proposal.

"We were told price doesn't matter. I went, `What do you mean price doesn't matter?'" Harston said in a telephone interview. "Never in my wildest dreams did I consider that my pricing wouldn't be considered part of an evaluation." He proposed a 13.5 percent markup, which he said was lower than his competitors.

When Hunter asked the DLA chief to explain how prices were set, Lippert couldn't answer. After several minutes in consultation with staffers, Lippert said he'd have to come up with detailed answers later.

Hunter said that prime vendors didn't seem to have any incentives to push their suppliers for better prices.

"It's something we should take a look at, sir," Lippert responded. "Your point's well taken."

In its investigation, Knight Ridder found higher prices were charged for 102 of the 122 items examined.

In April 2004, for example, prime vendor Gill Marketing charged $1,023 apiece for five electric hot plates. But a year and a half earlier, the maker of the hot plates had billed the Pentagon $450 for each item.

"If I was in business, I'd be tickled to death to get these kind of contracts," Rep. Joel Hefley, R-Colo., said. "Does this go much, much deeper?"

Lippert called the instances cited by Knight Ridder as mere "anomalies." He said that his staff reviewed the items that Knight Ridder examined and concluded that "the vast majority of these items were priced correctly."

But that's not what the government's own database shows.

Knight Ridder found that in its sample of millions of purchases of the 122 items, the government spent $1.2 million more than it needed to.

"These seem to be more than anomalies," Rep. John Spratt, D-S.C., said.


(Markoe reports for The State in Columbia, S.C.)


(c) 2005, Knight Ridder/Tribune Information Services.

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