Examination of Possible "Buy-In" by Garrett AiResearch

PSAD-77-70: Published: Feb 16, 1977. Publicly Released: Nov 5, 1982.

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Two subcontracts between Garrett Corporation and McDonnell Douglas Corporation under the F-15 program were examined to investigate the apparently calculated practice of Garrett's AiResearch Division of "buying-in" on contracts for the production of auxiliary power units.

There is evidence that Garrett submitted bids lower than their estimated costs on the F-15 subcontracts. Garrett admits to making what it referred to as an "investment" in the F-15 program. The extent of this investment was expected to be about $3 million. Whether Garrett has followed a consistent pattern of buy-ins cannot be determined by examining two subcontracts, but a consistent pattern can be inferred from statements by Garrett in court affidavits. McDonnell officials said they were aware that Garrett's offered price was less than the cost it expected to incur, or, at best, that Garrett would make little profit. It is also evident that McDonnell recognizes the concept of "investment". Before the initial procurement of the F-15 components involved in this report, competitive bids were solicited from many suppliers. The selection of Garrett on both items was based on technical superiority as well as lower prices. Garrett certified that it incurred losses in excess of $25 million for work performed and obtained financial relief of $21.7 million over the option prices for fiscal years 1975 and 1976 procurements. (Author/SC)

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