Did Pentagon lose billions, pennies at a time?

In 1969, an aeronautical engineer at North American Rockwell discovered a discrepancy in his paycheck: Every hour, he was being overpaid by roughly 2 cents, or one-third of 1 percent of his pay.

Spurred by an incentive program that rewarded employees for finding wasteful spending, Walter T. Davey submitted the discovery to his superiors and suggested a simple fix.

“It was so simple to correct,” said Davey, a 79-year-old retired Air Force colonel now living in Newport Coast, Calif., “just change a few digits in the coding software.”

A surreal experience followed: For decades, Davey has attempted to correct a calculation that he believes has cost taxpayers several billion dollars. He has alerted contractors, legislators, and federal auditors -- all to no avail, even though a 1981 federal report seemed to confirm his calculations. Through it all, he said, no one has challenged the numbers.

“I’ve been frustrated since I was denied that suggestion back in ’69,” Davey said. “Doggone it, I’m going to put it in my will that someone keep pursuing this.”

As President Barack Obama seeks to crack down on costs overruns in the defense industry,  Davey’s experience provides a telling illustration of the challenges facing reformers.

Legislators ignored Davey’s letters. Federal auditors deferred to Congress. Lobbyists “descended on it and tore it into a piece of Swiss cheese,” in the words of a former executive member of the Cost Accounting Standards Board, which is charged with reviewing accounting standards for high-dollar federal contracts.

New era for contractors?
But now, reform advocates say, the tenor has changed in Washington as the Obama administration has, on several occasions, signaled its intent to fundamentally overhaul the relationship between the Pentagon and defense contractors. Last month, Obama declared an end to the “days of giving defense contractors a blank check.”

“There’s optimism that this administration wants to reverse some of the pro-contractor trends of the past 15 years,” said Scott Amey, general counsel for the Project on Government Oversight, a nonprofit that investigates allegations of federal misconduct. “Contracting has become a front-burner issue.”

That has renewed hope for citizen activists like Davey, who said he has encountered endless obstacles and congressional dead-ends.

“Until recently I don’t even think you could bring an issue like this up,” said Richard C. Loeb, an adjunct professor at the University of Baltimore School of Law who reviewed Davey’s documents. “The fact you couldn’t have that debate until recently is really the bigger problem. At least now you can have a discussion about it without being thrown out of the room.”

But Loeb and other critics say legislators aren’t eager to challenge the powerful defense lobby about a figure that’s a relative pittance in the overall defense budget – even if it exceeds $100 million annually.

“(Davey) has always had a good point,” Loeb said. “It would be extremely easy to fix. It could save taxpayers upwards of tens and tens of millions of dollars a year.”

Spokesmen for several congressional representatives contacted for this story declined to comment, saying the issue had only recently come to their attention. The office of Sen. Maria Cantwell, D-Wash., which has been in communication with Davey in recent weeks, said it is “looking into this issue.”

An Open Secret
What Davey stumbled across in 1969 is an open secret.

Davey, a father of 10 children, said he and his wife always scrambled to find extra income for their growing family. At the time, Rockwell offered a reward to workers who discovered ways to save money. Davey submitted his idea.

Walter T. Davey ID badge worn in 1978 when employed at the Rockwell General Aviation Division in Bethany, Okla., as a test pilot and flight test engineer. Rockwell International was formerly named North American Rockwell.

“I have to be frank,” Davey said. “I was hoping to get some small financial award out of it. Then, as it grew over the years, I thought, ‘Wow, this is bigger than me.’”

How big remains a matter of debate: The Project on Government Oversight, which reviewed Davey’s findings last year, estimated the change could save taxpayers $270 million a year. Multiply by 40 years – the length of time since Davey made his discovery -- and the figure grows to an astounding $10.8 billion. (That figure, however, doesn’t account for inflation or yearly shifts in spending.)

The federal government has acknowledged problems with the conversion rate, which once applied to federal employees but can still be used by defense contractors.

In 1981, a study by the U.S. Government Accountability Office found that this tiny conversion factor cost taxpayers $120 million a year in faulty payments to federal employees alone – not including employees like Davey at private contractors. Four years later, as the Reagan Administration attempted to rein in federal spending, Congress passed the Budget Reconciliation Act, which changed the calculation for federal employees.

But it exempted defense contractors for reasons that remain unclear.

“Had Congress thought it necessary, they could have expanded its coverage to contractor employees as well,” the GAO’s director of acquisition and sourcing management wrote to Davey in 2008. “For whatever reason, Congress chose not to.”

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