Stories about apparently grotesque over-payment by public bodies for mundane items is always good for a headline or two. We saw that back in the days of the Private Finance Initiative (PFI) in the UK, with reports that schools or hospitals were having to pay hundreds of pounds to get their maintenance provider to carry out minor tasks. During the National Audit Office’s 2011 investigation into PFI it was revealed one school paid £333 to have a lightbulb changed. That was often down to very badly constructed contracts, with suppliers expecting to make most of their money from ongoing service charges of that nature rather than from the initial financing and construction.
In the USA, it often seemed to be military spend where costs were dis-proportionate; the famous ‘$435 hammer’ back in the 1980s, for instance. Now there is another example hitting the media this week. A new report from the Defense Department inspector general accuses aerospace and military giant Boeing of massive overcharging. The contract with the US Air Force allows Boeing to buy the required spare parts for the C‑17 military transport aircraft, and the Air Force reimburses Boeing for those purchases, according to the report. About 220 C-17s are used by the Air Force, Air National Guard and the Air Force Reserve Command.
But overcharging accusations covered around a dozen spare parts (which does not seem many, to be honest). The much-quoted example was soap dispensers used in the bathrooms of C-17 military aircraft, where the overcharge was estimated at 7,943%. So the dispensers were charged at some 80 times the price of similar commercially available products.
“The Air Force needs to establish and implement more effective internal controls to help prevent overpaying for spare parts for the remainder of this contract, which continues through 2031,” said Defense Department Inspector General Robert Storch in a statement.
Boeing has issued a holding response, saying they are reviewing the report, “which appears to be based on an inapt comparison of the prices paid for parts that meet aircraft and contract specifications and designs versus basic commercial items that would not be qualified or approved for use on the C-17″.
This is often the truth behind these stories. The specification for special ‘military’ items turns out to be significantly different to the apparent equivalents we might pick up in Walmart or on Amazon. However, that often means that it is a different type of Bad Buying that is taking place. It may not be a rip-off by the supplier, combined with poor scrutiny and contract management by the buyer. It may actually point to a poor specification.
So why exactly would a basic commercial soap dispenser not be fine for a cargo plane? Its not as if they fly at the speed of sound or anything. In fact, do you really need a dispenser that needs to be cleaned, refilled and so on, at all? Why not a simple bar of soap? The military and indeed some other public bodies do have a history of over-specifying, sometimes without realising just how much that can add to the costs.
It’s worth remembering that an industry-standard specification, or something that is readily available, perhaps even an item sold to consumer buyers, is almost always a lot better value than something we design and specify ourselves. If the most fundamental way of saving money is just by saying “don’t buy it”, the next best and most basic route is to say, “buy something simple”.