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Air Force Deal Called for $229 Washers

March 22, 1989

WASHINGTON (AP) _ The Air Force’s deal for $68 million in crash damage kits for its C-5 cargo aircraft involved ″every sorry facet of defense contracting,″ including a conflict-of-interest violation and vastly overpriced parts, a congressman said today.

The General Accounting Office, Congress’ investigative arm, found that Lockheed Aeronautical Systems Co. hired a retired U.S. Air Force colonel shortly after he negotiated a Pentagon contract with the defense contractor to buy the crash damage kits.

The review also found that among the prices Lockheed Aeronautical Systems Co. proposed for items in the 6,600-part kit were $229.94 for a nickel-size washer and $211.13 for an inch-long shim, a metal wedge, that was an excess part from production of the C-5B and originally valued at $22.09.

″This order involves virtually every sorry facet of defense contracting,″ said Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce subcommittee on oversight and investigations.

″We have a costly acquisition program with no justification, a clear conflict of interest, the revolving door, apparent fraud, outrageous prices, overpricing and a good example of the impotence of civilian control of the military.″

GAO official Harry Finley told the subcommittee that retired Air Force Col. Anthony Diferdinando ″did not comply with provisions in a conflict of interest law requiring that he report his employment contracts and disqualify himself from procurement functions involving Lockheed.″

Under questioning from Rep. Thomas Biley, R-Va., Finley said that in April 1986, Diferdinando signed a memo which said the Air Force needed the kits, needed the money to purchase them and specified that the contractor should be Lockheed.

One month later, Diferdinando made his first contact with the company about employment.

Dingell said that the Air Force Office of Special Investigations notified the subcommittee that a criminal investigation of the colonel for conflict of interest was begun last Thursday.

The subcommittee asked the GAO to look into the San Antonio Air Logistics Center’s purchase of the kits and an allegation that Diferdinando violated conflict of interest laws during the procurement process.

According to a GAO chronology, Diferdinando initiated acquisition of the crash damage kits, requesting funding for 147 kits. Less than a month later, the colonel requested an application for employment at Lockheed.

Diferdinando retired from the Air Force on July 1, 1986, and on Dec. 2, 1986, the Air Logistics Center issued its first order for the kits at an estimated value of $44.6 million.

Less than three weeks later, Lockheed offered Diferdinando a job, and on Feb. 2, 1987, the colonel reported for work in Lockheed’s International Marketing Division responsible for marketing the C-130 aircraft in Middle Eastern countries.

The GAO concluded that Diferdinando failed to comply with a Pentagon requirement that an individual promptly report contacts with a contractor or ″disqualify himself or herself if required to do so.″

″However, we did not find any evidence to indicate that his actions regarding the purchase of the kits were influenced by employment,″ the GAO said.

The investigative arm said it will refer the matter to the defense secretary, who could impose a penalty of up to $10,000.

A spokesman for Lockheed, Hugh Burns, declined to comment on the GAO findings until after the subcommittee’s hearings today.

The GAO review found that C-5 system managers based their request for the kits on two crashes and one lightning strike, which did not provide sufficient data for a decision. In fact, the GAO found that the kits cannot be used to repair a C-5A that was damaged in a fire at Travis Air Force Base on Dec. 30, 1988.

Air Force officials questioned the type of parts procured and the prices proposed by Lockheed, including shims priced at $211.33 and $160.97. In response to the Air Force plant representative office’s concerns about transfers of excess parts, Lockheed proposed about a $1 million reduction.

The Air Force’s reservations about the contract were evident in an internal memo written by Eric M. Thorson, acting assistant secretary of the Air Force.

″Thirty-nine percent of all items reviewed have failed the intrinsic value test,″ Thorson said. ″If that model holds, approximately 6,000 parts will be potential ‘toilet pans’ for Mr. Dingell to hold up in a hearing.″

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