TransDigm’s excess profits show weakness in supply chain management, not pricing practices

The recent high-profile case of yet another federal contractor accused of “price gouging” the U.S. Department of Defense has led to renewed condemnation of unacceptable “waste, fraud, and abuse” in the management of taxpayer dollars. In February, the DoD Inspector General reported that TransDigm Group earned excess profits on 46 of 47 spare parts and overcharged the DoD by $16.1 million on contracts worth $29.7 million.The response from Congress and others has been rightly outraged, but criticism has focused too narrowly on price, profit and the tools available to government contracting officers for determining price reasonableness. These are just symptoms of a larger, underlying problem with the DoD’s supply chain management. As happened with TransDigm, the DoD often finds itself in “vendor lock” with only one source for critical spare parts for a number of reasons.