Former Top Pentagon Official Reveals Brazen Defense Contractor Price Gouging

As the annual U.S. defense budget creeps closer to $1 trillion, an explosive interview with a former top Pentagon official has exposed private defense contractors’ brazen plot to price gouge the government on weapons and equipment — and reap billions upon billions of dollars of profits from taxpayers’ pockets in the process.

On Sunday, 60 Minutes aired an interview with Shay Assad, a former executive vice president and top contract negotiator for defense contractor Raytheon and former top Pentagon contract negotiator under several presidential administrations. Assad revealed that defense contractors, especially in recent decades, have been massively overcharging the government for nearly everything that it buys.

During his time in the Pentagon, Assad reviewed prices for many products, sometimes ordering official reviews for the costs of some weapons. In nearly all cases, Assad said, the government was paying far more than the product is worth in other markets or was worth in the past — with some things costing multiple times what they are actually worth, often costing the government hundreds of millions of dollars for one product.

“The gouging that takes place is unconscionable. It’s unconscionable,” said Assad. “No matter who they are, no matter what company it is, they need to be held accountable. And right now, that accountability system is broken in the Department of Defense.”

The former official, dubbed “the most hated man in the Pentagon” by Politico in 2016, brought up several examples of this price gouging.

In one example, he showed a picture of an oil pressure switch, an engine part, that he said NASA used to buy for $328. The Pentagon paid over $10,000 for the same part, he said.

“So what accounts for that huge difference?” asked 60 Minutes interviewer Bill Whitaker.

“Gouging,” Assad said. “What else can account for it?”

In another instance, Assad’s Pentagon team reviewed a contract with subcontractor TransDigm and found that the government is paying the company $119 million for parts that “should cost $28 million,” he said — over 4 times more.

This discrepancy, the former official said, is due to an immense amount of consolidation in the defense contracting industry. In 1993, then-Secretary of Defense Les Aspin, under President George H.W. Bush, held a covert dinner with top defense contractor executives to encourage them to consolidate. The companies followed suit, and the number of top contractors fell from 51 in the 1990s to five major companies today: Lockheed Martin, Raytheon, General Dynamics, Boeing and Northrop Grumman.

This consolidation paved the way for price gouging — TransDigm, though not one of the top companies, gained stock among the industry by buying up smaller companies within the industry. Its founder, Nick Howley, has been called before Congress to testify about the company’s excess profits — most recently after a 2022 Defense report found that the company was charging as much as 3,850 percent above market price for at least one part, netting the company $21 million in less than three years, according to the Project on Government Oversight.

The top defense companies are just as culpable. According to Assad, a certain shoulder-fired stinger missile used to cost $25,000 in 1991. Today, Raytheon, now the only manufacturer of the missile, charges more than $400,000 per missile — seven times more than the 1991 price, accounting for inflation and changes to the weapon.

The Patriot weapons system — the single most expensive weapons system sent by the U.S. to Ukraine during the current conflict at $1.1 billion — represents another instance of price gouging, Assad said. In 2015, his group reviewed the price of Patriot PAC-3 missiles and found that the profit margin for Lockheed Martin and Boeing was 40 percent profit over a seven year period, as compared to a typical profit margin of 12 to 15 percent for other contracts.

What’s more, it’s clear that the Pentagon is aware of this price gouging. A recent Pentagon study found that U.S. defense contractors “generate substantial amounts of cash beyond their needs for operations or capital investment,” and turn around and hand out profits to “shareholders so they can invest it elsewhere.”

With billions of dollars of profits, and roughly half of the yearly defense budget going toward private contractors, this is a major windfall for executives and shareholders. It is an extremely reliable windfall as well, as the defense budget represents by far the largest portion of annual federal appropriations spending and often increases by tens of billions of dollars each year. The Biden administration has requested $842 billion for the Department of Defense for 2024 — a record high request.

The Pentagon, the only federal agency that has never successfully passed an audit, seems to have little interest in combating price gouging. As Assad pointed out, the Pentagon cut 130,000 employees whose jobs were to negotiate defense contracts in the 90s, representing over 50 percent of such employees, he said.

“They were convinced that they could rely on the companies to do what was in the best interests of the war fighters and the taxpayers,” Assad said.

Instead, the cuts and consolidation led to an era of uninhibited price gouging, as former Air Force Lieutenant General Chris Bogdan, who oversaw many weapons purchases, added. “They are companies that have to survive, make profit. The Department of Defense, on the other hand, wants the best weapon systems it can have as quickly as possible and as inexpensively as possible,” Bogdan said. “Those are opposite ends of the spectrum. “

“But in our system, there’s nothing wrong with profit,” Whitaker remarked.

“No, there isn’t,” Bogdan replied.