Last June, after a government engineer warned a Senate subcommittee that the Boeing Military Airplane Co. was planning to charge the Air Force $748 for a pair of duckbill pliers, Boeing slashed the pliers' price to $90.
It seemed like another victory in the Pentagon's war on exorbitant spare-parts prices, as Boeing also chopped the prices of about 50 other tools included in the same Air Force contract.
But, according to recently obtained documents, Boeing also tacked a new charge onto that contract: $95,307 for "support equipment management." Result: the total price of the pliers and other tools went from the original $557,500 to exactly $557,500.
"Dealing with these contracts is like squeezing a balloon: you squeeze it in one place and it pops out in another," Sen. Charles E. Grassley (R-Iowa), who complained about the pliers when they cost $748, said yesterday. "The moral is, you don't listen to the rhetoric coming out of the Pentagon. You look at the bottom line."
The pliers at issue, used in repairing engines on KC135 tanker airplanes, are standard duckbill pliers made by Channellock Inc. of Meadville, Pa., except for a small notch on the end, an Air Force parts number on the side and a "black oxide protective finish." Ompal Chauhan, the engineer who testified before Grassley's Judiciary subcommittee on administrative practice and procedure last June, said he found similar pliers at a hardware store for $7.61.
"The question comes to mind, 'Can common hardware store pliers be used?' " the Air Force wrote to Grassley in July. "The answer is that common pliers could probably be made to work."
But in its unsigned explanatory memo, the Air Force said that ordinary pliers would not be the ideal tool for the task of positioning a small pin in the jet engine.
"Anyone who has tried to perform minor maintenance on their car or kitchen sink knows that lack of the proper tool can make a simple task almost impossible," the Air Force said.
Boeing originally proposed charging $5,096 for two pliers in 1983. That price included $305 for the two pliers and Boeing's surcharge for buying them -- plus $4,791 for what the Air Force called additional "management support tasks and profit."
Air Force price analysts concluded that the price was too high and negotiated with Boeing for almost six months. On March 2, the Air Force signed a contract that included $1,496 for the two pliers -- "a 70 percent reduction," the Air Force noted in its memo to Grassley.
Although Boeing only acted as middleman in buying the pliers from another firm which, in turn, purchased them from Channellock, the Air Force said the overhead costs were reasonable because the tools were the first supplied for the KC135 overhaul program.
"Suppliers must be identified, contracts written, schedules monitored to ensure timely delivery, hardware tested, specifications checked, records maintained, drawings/specification packages prepared and delivered, and so on," the Air Force explained.
By the time Chauhan testified, Air Force officials had become "sensitive to the line item price integrity requirement," the Air Force said. As a result, Boeing shifted costs within the proposal.
"There was an appearance of overpricing," the Air Force said. "However, that appearance is now being corrected."
In fact, the appearance was corrected twice, according to defense officials. Boeing knocked the price down to $90 and added the $95,307 management charge in July, then reduced the price to $80 in October -- simultaneously increasing the management charge to $143,000. The total contract price: a familiar $557,500.
Boeing spokesman Allen Hobbs said the overhead costs were legitimate.
"Building and delivering this equipment requires professional controls and support," he said in response to a question yesterday. "These support costs include management, financial controls, materiel buying, vendor cost analysis, various types of planning, computing time, fringe benefits, etc."
The Boeing contract also includes $30,648 for "proposal preparation." That paid for 1,286 computer-generated pages of background material, one official said, or an average of 23 pages for each line item, including the two pliers.