Ro Khanna Forces Beltway Bandit to Refund Millions From Price Gouging
In a Congress dominated by dysfunction and partisan bickering, Congressman Ro Khanna may have found a model for success. In a resounding victory for what congressional oversight can achieve, the California Democrat recently got defense contractor TransDigm to refund $16.1 million in egregious price-gouging overcharges.
Lately, the deeply unpopular Congress has focused much of its attention on ineffectual investigations into Donald Trump. Yet not so long ago, it wielded its powerful investigative tools to force accountability from industry and government alike. Congressman Khanna’s recent success illustrates that it’s still possible for the legislative branch to do so—should it choose to.
The TransDigm refund wasn’t accomplished through legislation. Instead, the defense contractor voluntarily returned the money because a member of Congress started asking questions.
“I had been in Congress for a few months, and I came across initial reporting from Capitol Forum about TransDigm and their business model, and the report suggested they were buying up small manufacturers supplying DoD and then jacking up the prices by 500 or 5,000 percent,” Congressman Ro Khanna said in an interview with TAC.
After he wrote a letter to the Defense Department’s Inspector General, the IG launched an investigation that concluded with a scathing report showing that TransDigm had made “excess profit” on 46 of 47 spare parts, with profit margins as high as 4,451 percent on some sole source parts. The IG also identified 12 parts that previously had been sold to DoD by another contractor. After acquisition by TransDigm, each part became significantly more expensive. Following a bruising House Oversight Committee hearing where both Republicans and Democrats united in demanding that the company refund taxpayers, TransDigm agreed to return $16.1 million in overcharges to the Pentagon.
“There’s no political ideology that comes into play with this; it’s just right and wrong,” Congressman Khanna told TAC. “It’s offensive to those of us on the Armed Services Committee…to see a company profiting like this off our military and our men and women in uniform [who are] dependent on some of [the contractor’s] equipment. It’s appalling; it’s the worst kind of offense a company can” commit.
The legislative branch used to frequently deploy the Inspector General to investigate federal departments and to justify spending requests. These are “absolutely” the sort of investigations that Congress should be focusing on, Mandy Smithberger, an analyst at the Project on Government Oversight, told TAC.
“Congress used to do more of this kind of oversight, and we need to” return to that, said Khanna. “My sense is we have to be more vigilant in looking out for contractors who are abusing the system, anywhere in government, ask for investigations and try to be bipartisan about it. In this case I had [the assistance of] Congressman Mark Meadows who was very eloquent. The investigation wouldn’t have succeeded if it hadn’t been bipartisan, because that would have given the company an out”: claiming that the probe was motivated by partisan political posturing.
Still, the $16.1 million returned by TransDigm represents a drop in the bucket of government’s wasteful spending.
Federal departments and agencies have not implemented $87 billion worth of Inspectors General proposals. Of that, the Pentagon is responsible for approximately 38 percent, according to a 2016 report from the Senate Judiciary and Homeland Security committees. Since fiscal year 2014, the Pentagon failed to implement over half of the 1,122 recommendations made by the Government Accountability Office (GAO). Nearly a quarter of the unheeded recommendations were at least four years old, according to a GAO report. Of its recommendations to DoD, the GAO considers 68 to be “priority” proposals. Yet almost half of the solutions the GAO deemed most important were also ignored by the Pentagon.
A bill sponsored by Congressman Mark Walker and Senators Todd Young and Elizabeth Warren, and signed into law by President Trump this year, would force agencies to explain why they have ignored recommendations from either the IG or GAO starting in 2021.
“It’s unacceptable that Federal agencies ignore thousands of recommendations on how to become more efficient and save taxpayer dollars,” Congressman Mark Walker said in a statement.
When implemented, the Good Accounting Obligation in Government (GAO-IG) Act has the potential to make IG reports an even more powerful weapon in Congress’s oversight arsenal.
Inspectors General “aren’t writing these reports and recommendations for their health,” Steve Ellis, executive vice president of Taxpayers for Common Sense, said in an interview with TAC. “They’re asking serious questions and making recommendations for improvements within these agencies…. These reports cost taxpayers millions of dollars, and they actually could save taxpayers if they were implemented. This law would simply make the executive branch tell Congress why they’re not implementing these recommendations. …At least agencies will have to explain themselves, instead of simply ignoring them and sticking their heads in the sand while taxpayer dollars are being wasted.”
“I think this bill will be helpful at ensuring that Congress takes the work of the watchdogs seriously and makes sure the Department is being responsive to the concerns raised,” Smithberger told TAC. “However, I don’t know that this bill will be enough.”
Without the withholding of taxpayer dollars if departments are non-responsive, the new law could simply become a “paper-shuffling exercise” at the Defense Department and elsewhere, said Smithberger. The best way Congress can make the Pentagon accountable “is through the budget, and looking at restrictions and other penalties when the Department is not fixing the problems identified,” she said. “I think it’s good to have follow up requiring the departments to explain when they don’t implement the IG’s recommendations…. Sometimes there will be delaying tactics from the Department, and I think it will help Congress see how to put pressure on the appropriate parts of government to enact change.”
Congressman Khanna, who has also sponsored a bill to end U.S. troops fighting in Yemen, has requested that the GAO look into legislative fixes so as to prevent contractors overcharging in the future, and to make the procurement process less susceptible to fraud and abuse. One clear problem that stood out in the TransDigm case was that procurement officers are unable to request cost information for contracts under $2 million.
“Everyone at DoD knew TransDigm was jacking up prices. They were just helpless to do anything,” said Khanna.
While requiring pricing for every small part would make the government contracts overly burdensome, a change in the law that gives officers the discretion to request pricing if they suspect price gouging could prove useful.
The refund from TransDigm only came about because Khanna started asking uncomfortable questions and sent an Inspector General to investigate. The astonishing results show the power Congress still has.
Members of Congress would do well to heed this model for success: focus on bipartisan investigations that will save taxpayers money and put an end to fraud and abuse. The Inspectors General reports, coupled with the new GAO-IG bill, will strengthen Congress’s ability to hold the executive branch accountable, particularly if it ties non-compliance to taxpayer funding.
There’s another benefit, too. If Congress chooses to focus on “standing up for the American taxpayers,” it could restore trust in itself as an institution and in our government, said Khanna.
“When you can take actions on a bipartisan basis, like going after a bad contractor fleecing the American people, it shows that Congress is able to stand up for the public interest,” Khanna said. “That goes some way in restoring people’s confidence that Congress can function…this is why Oversight was established, and we need more wins like this to help Americans believe in the role Congress can play to help the American people.”
Barbara Boland is The American Conservative’s Foreign Policy & National Security reporter. Follow her on Twitter at @BBatDC.