Statement of Paul Hackler

Supervisory Auditor

Defense Contract Audit Agency

September 10, 2008

Mr. Chairman, Ranking Member Collins, and members of the Committee:

Thank you for the opportunity to speak to you today about DCAA’s ELC Buy III proposal audit. I am currently a GS-13 Supervisory Auditor in the Defense Contract Audit Agency’s Western Region – Huntington Beach Resident Office responsible for Department of Defense contractor audits. I am a certified public accountant with 25 years of contract audit experience. The 2005 and 2006 ELC proposal audits I supervised were based on a 15-year lot costing scenario designed to allow Boeing to recover approximately $270 million in losses Boeing incurred as a result of its poor business decision to gear up for a robust commercial cell phone satellite market that failed to materialize. In using a 15-year lot costing approach, Boeing was able to average those losses over 15 years, thereby reflecting higher costs for future missions. In restructuring the program to avoid further losses, the government agreed to reimburse Boeing prospectively for launch capability efforts and Boeing was forced to abandon lot costing for that portion of the program. Boeing seized this opportunity to recover past losses by


developing proposals that violated numerous procurement regulations. In its proposals, Boeing claimed that the cost per launch would decrease in the future and the government needed to compensate Boeing for higher up-front costs. In actuality, the devastatingly high up-front costs were a direct result of Boeing’s unprofitable decision to gear up for a prolific commercial market that failed to materialize. My office was directed by DCAA upper management to basically play along with this outrageous government bailout!


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