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Originally published May 3, 2011 at 10:00 PM | Page modified May 4, 2011 at 2:48 PM

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$645 for $12.51 spare part? Boeing gives Army refund

Boeing charged the Army excessive prices for helicopter spare parts, including $644.75 for a tiny black plastic motor gear that cost another Pentagon agency $12.51, according to a report by the Defense Department's Inspector General.

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Boeing charged the Army excessive prices for helicopter spare parts, including $644.75 for a tiny, black plastic motor gear that cost another Pentagon agency $12.51, according to a report by the Defense Department's Inspector General.

Earlier this year, the company refunded $556,006 on the "spur gear" after an audit draft was issued.

The second-largest defense contractor also issued a $76,849 Army refund for a dime-sized, plastic "roller assembly" that costs $7.71. Boeing charged the Army $1,678.61 apiece.

Both parts are installed on the CH-47 Chinook.

The refunds were among $1.6 million Boeing made during the auditing phase or after the draft was issued. The audit cites excessively priced parts or costs based on pricing data that wasn't current, complete or accurate from Boeing's two Corpus Christi, Texas, Army depot contracts valued at about $970 million.

The initial award of the contract was made in June 2004.

Overall, based on a sample of 18 "high-dollar parts" used to maintain Army helicopters at Boeing's facilities in Philadelphia and Mesa, Ariz., "we calculated that Boeing charged the Army about $13 million, or 131.5 percent more than fair and reasonable prices," on $23 million in orders, according to the audit.

The audit underscored the pricing problems that can occur under contracts where the Army, the Air Force and the Navy purchase management services and parts from private contractors instead of through the Pentagon's Defense Logistics Agency.

The Boeing work is intended to reduce by as much as 50 percent the overhaul time for helicopters returning to combat.

The report comes as the Pentagon seeks efficiency savings pushed by Defense Secretary Robert Gates for $100 billion through 2016 to protect weapons buying and operations accounts.

Boeing spokesman Daniel Beck declined to address the audit report, which the Inspector General's Office provided to the company before release.

"We have a long history of supporting our Army customer, and we are committed to working closely with our customer to ensure we are maximizing efficiencies. For information or questions about the report, you should contact the U.S. Army," he said.

Separately, the audit disclosed as much as $277.8 million of existing spare parts, stored in Defense Logistics Agency warehouses, that could be used by the Army instead of purchasing through Boeing at higher prices.

Army officials "did not effectively use" millions of dollars in inventory because the Pentagon had inadequate policies for addressing inventory use, it said.

Firing of 2 Boeing

auditors upheld

Two former Boeing auditors who were fired after disclosing concerns about company auditing practices to a Seattle Post-Intelligencer reporter in 2007 aren't protected from retaliation by the Sarbanes-Oxley Act, a federal appeals court ruled.

A three-judge panel of the San Francisco-based court Tuesday upheld the dismissal of a lawsuit by Matthew Neumann and Nicholas Tides. The men had sued Boeing, claiming their firings violated Sarbanes-Oxley, a 2002 law that aims to protect investors from the possibility of fraudulent accounting practices by corporations.

Unlike the federal Whistleblower Protection Act, Sarbanes-Oxley only protects employees when they disclose information about alleged securities violations to supervisors, federal regulatory investigators or Congress, the court said.

Boeing had the right to terminate the auditors for violating company policy prohibiting disclosure of information to the media, the judges ruled.

"Going to the media is a way of communicating a message and using it to tell Congress what's going on," John Tollefsen, an attorney for Neumann and Tides, said in a telephone interview. "Nothing in the statute says it has to be confidential."

The court didn't consider arguments that Boeing used the media disclosure as a pretext for firing the auditors, said Tollefsen, who said he will advise his clients to seek rehearing by a larger panel of judges.

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