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Defense Contract

March 22, 1985

In view of the recent disclosures involving $6,500 coffee brewers, $600 toilet seats, country club fees and private use of corporate jets being charged as legitimate business expenses to Defense Department contracts, I'd like to expose to public view what happens to a small contractor who incurs the wrath of the government.

I am a small contractor with less than 10 employees. A recent sale to Defense Electrical Supply Center (DESC), Dayton, Ohio, involved a small electrical component, which, after adding processing and shipping charges to the original cost of $48, cost my company $66. We charged DESC $75.90, which reflected a 15% markup and a net profit of $9.90.

Our contract administrator at DESC called us from Dayton and informed us that the computer had "kicked out" our invoice. Previous purchases (of larger quantities) indicated that our price was exorbitant and unless we reduced our price we would no longer be allowed to sell this item to the government.

After a 20-minute conversation, which became heated at times, we agreed to drop our price by $10. This resulted in a net loss of 10 cents to my company. The government's saving was more than dissipated by the long-distance call from Dayton to Van Nuys.

Now if only the Defense Department could twist the arms of General Dynamics, Lockheed, and the other giant suppliers of materiel, we might see some real savings in the defense budget.

S. KARNOVITZ

Van Nuys

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