Ro Khanna’s Continuing Fight Against Defense Contractor Rip-Offs

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Andrew Harnik/AP Photo

Representative Ro Khanna speaks at a news conference on Capitol Hill in Washington. 

When I talked to Representative Ro Khanna last week he sounded a bit groggy, coming off an all-night session in the House Armed Services Committee where he had put forward an amendment to fundamentally change how military procurement works. It came out of a two-year battle over TransDigm, a private equity–style supplier of spare parts for commercial and military aircraft. TransDigm acquires firms to corner the market on certain parts and then jacks up the price to the government, with markups as high as 4,451 percent.

Khanna's amendment would eventually pass, barely, after a major fight that put him up against the ranking Republican on Armed Services, Mac Thornberry. Turning the amendment into law, however, requires getting it through the Republican-controlled Senate, and the key figure there is his Senate partner in the TransDigm skirmish, Elizabeth Warren.

Well before the Armed Services Committee took up Khanna's amendment, the TransDigm case had already yielded a damning Pentagon inspector general report, showing that TransDigm had secured unreasonable markups on 46 out of the 47 contracts studied. The only reasonable markup was on a contract so large that TransDigm was required to provide data on how much it cost to produce the products.

According to the Pentagon's report and a subsequent congressional investigation, in their quarterly sales meetings TransDigm executives would instruct personnel to structure sole-source contracts to fall below the dollar thresholds that made cost data mandatory, or to claim that the items for purchase were commercial, and therefore exempt from cost disclosures. “We didn’t have a problem getting price increases to the government,” said one former TransDigm sales director who asked for anonymity. “I would say the word to use is ‘relentless.’ There was general contempt for the contracting officials.”

At a subsequent congressional hearing, TransDigm CEO Kevin Stein admitted that the company claimed the commerciality exemption 15 times to withhold cost data, even though the Pentagon found that the items exempted were not actually commercial. Even Trump administration officials savaged TransDigm for its “disgraceful business model.” The hearing was a disaster for TransDigm, leading to it returning $16.1 million in ill-gotten gains.

According to Khanna, his amendment would prevent TransDigm's price-gouging schemes from ever happening again. It would allow Defense Department contracting officers to require suppliers to supply certified cost information anytime they assert that the data would be needed to ensure a fair and reasonable price. This would short-circuit TransDigm's entire gambit, in which the company would resist giving officers that cost information whenever it was not required to do so.

“Empowering the contracting officer is the most important thing,” Khanna said. “They know TransDigm is committing fraud. They know and are helpless to do anything.” Under the amendment, the commercial-item exemption would be nullified if the contracting officer sought the cost information in writing.

Khanna had previously worked the TransDigm issue in a friendlier venue than the Armed Services Committee. The other committee he serves on in Congress, besides Armed Services, is Oversight. After the Pentagon inspector general report came out, Khanna opted to seek an investigation and hearing on it in the Oversight Committee, which is populated by antiwar liberals and fiscal conservatives. There, he roused near-unanimous condemnation against TransDigm, from Alexandria Ocasio-Cortez and Rashida Tlaib on the left to Freedom Caucus leaders Mark Meadows and Jim Jordan on the right.

An amendment to prevent TransDigm price gouging, however, would have to go through Armed Services, which has jurisdiction over Defense Department policy. On that committee, members often cater to military contractors' needs and funnel billions of dollars their way.

Thornberry attempted just that last week, during the Armed Services Committee's markup for the annual defense authorization bill, a policy directive and one of the few bills Congress manages to pass every year. Thornberry countered Khanna’s amendment with a compromise, which would have asked the Defense Department to create guidelines for dealing with sole-source contracts. This was a clear delaying tactic that would have kicked authority over to Pentagon officials, who might well be cajoled by contractors into writing toothless rules. Although Thornberry admitted that TransDigm had “abused the system,” he cautioned that placing reporting burdens on business would discourage contracting with the government.

It was the same cover story that Thornberry had used when he chaired the committee before the Democrats took control of the House in January. With Thornberry wielding the gavel, Congress had actually increased the minimum contract threshold for cost data from $750,000 to $2 million. But that was before the revelations about TransDigm, and Khanna was unrelenting in demanding reform. “I said that TransDigm’s CEO admitted that they used the commercial exception to game the system,” Khanna told me. “What more evidence do you need?” He stressed that the amendment would only come into play if contracting officers suspected price gouging, and that honest contractors would not be affected.

It's unusual for a junior representative to defy a ranking member of the committee, but Khanna proved successful. The Thornberry amendment lost by one vote, 29-28, and the Khanna amendment got placed into the bill by a voice vote. Several Democrats sided with Thornberry on his amendment, but not enough for passage.

A separate amendment from Jackie Speier, which gave authority to request cost data on sole-source parts to the head of the contracting office, also passed; Thornberry supported it, suggesting it was watered down enough to be deemed acceptable. However, the Speier amendment does include penalties for defense contractors that deny cost data to procurement officials, including debarment from future contracts.

The bill now goes to the full House, where it's likely to pass. But the Senate had already passed its version of the defense authorization bill by the time the House got around to it. So including an amendment mirroring Khanna's on procurement reform would have to be done on the Senate floor. When I asked Khanna who would do that, his response was immediate: “Elizabeth Warren.”

The Massachusetts senator and 2020 presidential candidate has been a key partner for Khanna on TransDigm, joining Khanna's call for an investigation in 2017. “Her office is very invested in this,” Khanna said. “She sent me a text when we won the $16 million, saying it was great to work with you.” Khanna will have to rely on her ability to round up the votes to get procurement reform into the Senate bill. That would be critical, because if it appeared in both the House and Senate versions, it would be difficult to remove it in any eventual compromise.

Getting the normally pliant House Armed Services Committee to agree to his procurement reforms is a major achievement for Khanna. But he has several steps to go—and more sleepless nights—before finding success.