The Defense Department is paying millions of dollars too much for aircraft engine spare parts and is giving far too little attention to cost increases, according to a draft report by auditors for the Pentagon's inspector general.
Spare-parts spending in the Navy and Air Force agencies examined by Defense auditors reached $1.2 billion in fiscal 1982, and prices for nearly 30 percent of the 15,000 parts the auditors checked went up 500 percent or more between fiscal years 1980 and 1982.
In 1982, the Air Force paid $17.59 for a bolt that cost 67 cents in 1980. The price of one section of a Rolls-Royce ring assembly increased from $3.70 to $54.75 in the same period.
In many cases, the report--drafted for Inspector General Joseph H. Sherick--found that "little effort was being made to limit exorbitant cost growth," while the Pentagon "provided contractors with a 'blank check' and no incentive to cut costs."
Spare-parts horror stories have become standard fare at the Pentagon during the past year, but the draft report offers the most authoritative evidence so far of the widespread scope of the problem.
The report also points to several institutional factors that continue to inflate prices despite Defense Secretary Caspar W. Weinberger's exhortations to spur competition and limit costs. Among the factors cited were undue reliance by Air Force officials on their prime contractors' advice, and top officers' emphasis on speedy delivery rather than cost.
Air Force official are examining the 41-page report. They declined comment until release of the final document. The draft was obtained and released to reporters by the nonprofit Project on Military Procurement.
The report said the Pentagon virtually guarantees high prices by purchasing most spare parts with "sole-source," non-competitive contracts. Many contracts the Air Force considers competitive pit a contractor against one of its affiliated licensees, diminishing the incentives for true competition.
In addition, 27 percent of all parts sampled were bought under contracts that allow the supplier to raise prices every year.
"The use of the latter type of contract resulted in contracting officers paying little attention to the unit prices paid for spare parts," the report said. "The contractor's risk is minimal because increased costs are simply passed on to the government."
Even in cases where competition could exist, the department did little to encourage it, according to the report. "There was a reluctance by the government engineers to consider alternate sources without the approval of the prime contractor," it said.
The report focuses on Pratt & Whitney, a unit of the United Technologies Corp. conglomerate that produces most U.S. jet engines and parts. It says the company often purchased parts from independent vendors and then sold them to the Air Force without justifying its substantial markups.
The report's conclusions could be embarrassing to Pratt & Whitney, which already has been charged in internal Air Force audits with unjustified pricing. Pratt & Whitney is now engaged in a major lobbying and performance competition with General Electric Co. for the right to produce the next generation of Air Force and Navy fighter jet engines.
A spokesman for Pratt & Whitney said the firm has submitted a plan to the Air Force to "correct deficiencies in its relationship with suppliers." The company has denied improper pricing in the past, but said it has not had an opportunity to study the draft report.
The report notes that General Electric, Rolls-Royce Ltd. and other suppliers also raised the prices on spare parts far beyond the inflation rate.