FP’s Situation Report: The Pentagon’s $600 Toilet Seat lives; Why Congress still likes the F-35; Abdullah toys with a new government in Afg; Greenwald on the NSA’s spying on Muslim-Americans; Did Hagel and Dempsey make the case on Iraq? and a bit more.

By Gordon Lubold with Nathaniel Sobel

The $600 Toilet Seat lives: The Pentagon paid Textron Inc. Bell Helicopter unit $8,123.50 each for gears that should have cost $445.06, according to a report by the Pentagon’s inspector general. Bloomberg’s Tony Capaccio and Jonathan D. Salant with this incredible scoop: "The Pentagon paid Textron Inc.’s Bell Helicopter unit $8,123.50 each for gears that should have cost $445.06, according to a report by the Defense Department’s inspector general. The bevel gears that were marked up 18-fold were part of $9 million in excess payments by taxpayers cited by the watchdog office. This is the latest case in which the inspector general said Pentagon agencies allowed contractors to overcharge for parts.

"For decades, the Defense Department has periodically been the subject of ridicule from lawmakers, and even late night comedians, after reports of inflated prices for items such as a coffee pot and toilet seat. In the Bell case, the inspector general recommended that the Defense Logistics Agency seek to recoup the excess money and analyze prices to ensure taxpayers aren’t further overcharged. Otherwise, the excess payments may increase by an additional $2.6 million under Bell’s noncompetitive contract, the report found."

Jacqueline Wicecarver, assistant inspector general for acquisition, according to the July 3 report: "The contracting officer did not sufficiently determine whether prices were fair and reasonable." The report, here; Capaccio’s story here. 

Speaking of which: the next-generation F-35, the most expensive plane ever built, may be too dangerous to fly – why is Congress keeping it alive? FP’s Kate Brannen: "Burying bad news before a long holiday weekend, the Pentagon announced just before 9 p.m. on July 3 that the entire F-35 Joint Strike Fighter fleet was being grounded after a June 23 runway fire at Eglin Air Force Base in Florida. The grounding could not have come at a worse time, especially for the Marine Corps, which had lots of splashy events planned this month for its variant of the next-generation plane, whose costs have soared to an estimated $112 million per aircraft.

"…In the case of the F-35, the short answer is: a lot. Counting all of its suppliers and subcontractors, parts of the program are spread out across at least 45 states. That’s why there’s no doubt lawmakers will continue to fund the program even though this is the third time in 17 months that the entire fleet has been grounded due to engine problems. In fact, in the version of the defense appropriations bill passed by the House, lawmakers agreed to purchase 38 planes in 2015, four more than the Pentagon requested." More here.

Hagel visits the site of the F-35 fire today. The Hill’s Martin Matishak: "Defense Secretary Chuck Hagel on Thursday will visit the air base where an F-35 Joint Strike Fighter caught fire last month, grounding the entire fleet. The visit to Eglin Air Force Base in Florida is designed to "send a strong message to our international partners that the U.S. remains fully committed to the F-35 program," Pentagon press secretary Rear Adm. John Kirby said during a briefing Tuesday. A fire erupted aboard an Air Force variant of the multimillion-dollar jet on June 23 as it attempted to take off, leading the military to launch a full investigation. Last week the armed services ordered their entire fleet of 97 fighters grounded, a signal that there could be a systemic problem with the aircraft or its engine. Lockheed Martin and Pratt & Whitney are the primary contractors for the weapons effort." More here.

Staffers on a plane: Lt. Gen. Abe Abrams, senior military assistant, Stephanie Miller, special assistant for personnel and readiness; Pentagon Pressec John Kirby; Speech writer Aaron Sherman.

Reporters on a plane: Defense News’ Marcus Weisgerber, Politico’s Phil Ewing, Omaha World Herald’s Joe Morton, Stripes’ Jon Harper, Breaking Defense’s Sydney Freedberg, AP’s Lita Baldor, Reuters’ David Alexander and the Pentagon’s Cheryl Pellerin and Jacqueline McGinnis.

Stimson’s Russell Rumbaugh and John Cappel did an analysis of the Pentagon’s "OCO" budget that says what folks have long suspected: that the war budget funds base operations. Check out their analysis here.

Welcome to Wednesday’s edition of Situation Report. If you’d like to be one of our subscribers, we’d love to have you. Sign up for Situation Report by sending us a note at gordon.lubold@foreignpolicy.com and we’ll just stick you on. Like what you see? Tell a friend.  And if you have a report you want teased, a piece of news, or a good tidbit, you, send it to us early for maximum tease. And the more shovel-ready, the better. And hey! Follow us: @glubold and @njsobe4.

Growing frustration in Israel is pushing the government to further escalation.  Ha’aretz’s Amos Harel: "Hamas, despite its weak position and strategic distress, is calling the shots so far in the current round of hostilities. Israel is sliding toward a military confrontation it did not seek. The growing casualties in the Gaza Strip and the fact that three million Israelis have already experienced running to shelters to the sounds of blaring sirens are dictating an increasing escalation. Since there is as yet no blueprint for an escape route for the two sides, and Egypt’s commitment to putting in the effort required to reach an agreement is unclear, it’s impossible say how long the hostilities might last." More here.

Siege Mentality: Reporting for FP, Gregg Carlstrom tells the story of how the real battleground in East Jerusalem is about to boil over. Read that here.

Hamas rockets land deep in Israel as it bombards Gaza Strip. Reuters’ Nidal al-Mughrabi and Jeffrey Heller this morning: "Militants in Gaza fired more rockets at Tel Aviv on Wednesday, targeting Israel’s heartland after Israeli attacks in the enclave that Palestinian officials said have killed at least 27 people. No casualties were reported in the rocket barrages, on the second day of an intensified Israeli offensive in the Hamas-dominated Gaza Strip. Missiles from Israel’s Iron Dome defence system shot into the sky to intercept the projectiles." More here.

But Israel isn’t ready for a ground invasion of Gaza just yet. The NYT’s Steven Erlanger and Isabel Kershner on Page One: "While the government authorized the army to call up another 40,000 reservists, the defense minister, Moshe Yaalon, a former chief of staff, said that the goal of Operation Protective Edge ‘is to bring down to zero the fire and attacks out of Gaza.’… But government officials and former military officials also made it clear that Israel would prefer not to have a ground operation in Gaza, where fighting conditions are less favorable to Israel than from the air, where Israel has total supremacy." More here.

In Afghanistan, Abdullah Abdullah says he’ll decide within a few days whether to form his own administration. But if he did so, that would appear to trigger the threat Secretary of State John Kerry put in place the other day when he said any illegal government would mean the U.S. would remove financial and security assistance from Afghanistan. At the Pentagon, Pentagon Pressec Rear Adm. John Kirby said there are no plans to accelerate a drawdown of troops. The WSJ’s Margherita Stancati and Nathan Hodge in Kabul and Dion Nissenbaum in Washington slapped across Page One: "Afghan presidential candidate Abdullah Abdullah claimed victory in defiance of preliminary vote results showing he lost and considered forming his own government, despite U.S. warnings that the country risked losing financial and security aid.

Mr. Abdullah to supporters during a boisterous rally in Kabul: "There is no doubt we are the winners of this election… We will not allow a fraudulent government for a day."

"…Before the rally, President Barack Obama called Mr. Abdullah and urged him to await a probe of ballot-stuffing allegations, telling him that ‘there is no justification for resorting to violent or extra-constitutional measures,’ said White House spokeswoman Caitlin Hayden. ‘We’ve been clear that any such move would cost Afghanistan the financial and security assistance of the United States,’ she added.

"Mr. Abdullah said he would decide within a few days whether to form his own administration, a statement his supporters jeered because they wanted him to say he was taking power immediately… One of Mr. Abdullah’s closest allies, former warlord and Balkh province Gov. Atta Mohammad Noor, declared he would only recognize an Abdullah-led government in his northern province." More here.

Who’s Where When – Secretary of Defense Chuck Hagel is traveling domestically… Assistant Secretary of Defense for International Security Affairs Derek Chollet testifies before the Senate Foreign Relations Committee on "Russia and Developments in Ukraine" at 9:45 a.m…

Apropos of nothing: These two women who should know better tried to steal some dad’s beach kit in broad daylight and got busted in a viral video from earlier this week. Worth the watch, here.

More wrongdoing: Carolina Panthers running back DeAngelo Williams might have given his premium plane seat up to a fake Marine. Probably was a "faker", since no Marine would wear a cover inside a plane and wear his medals all screwy, as the WaPo’s in-house Marine, summer intern Thomas Gibbons-Neff, spotted immediately. See the pic and read that bit here. 

Meet the Muslim-American leaders the FBI and NSA have been spying on. Glenn Greenwald and Murtaza Hussain for The Intercept report on a NSA spreadsheet in the Snowden archives called ‘FISA recap’: "The spreadsheet shows 7,485 email addresses listed as monitored between 2002 and 2008. Many of the email addresses on the list appear to belong to foreigners whom the government believes are linked to Al Qaeda, Hamas, and Hezbollah. Among the Americans on the list are individuals long accused of terrorist activity, including Anwar al-Awlaki and Samir Khan, who were killed in a 2011 drone strike in Yemen.

"But a three-month investigation by The Intercept-including interviews with more than a dozen current and former federal law enforcement officials involved in the FISA process-reveals that in practice, the system for authorizing NSA surveillance affords the government wide latitude in spying on U.S. citizens.

"The five Americans whose email accounts were monitored by the NSA and FBI have all led highly public, outwardly exemplary lives. All five vehemently deny any involvement in terrorism or espionage, and none advocates violent jihad or is known to have been implicated in any crime, despite years of intense scrutiny by the government and the press. Some have even climbed the ranks of the U.S. national security and foreign policy establishments." More here.

 U.S. officials say Obama was in the dark about the German spook who was passing intel to the CIA. The NYT's Mark Mazzetti and Mark Lander on Page One, here. 

 Eric Holder urges Europeans to help the U.S. stop the flow of foreign fighters into Syria; The WaPo's Sari Horwitz, here.  

Meantime, Iran’s supreme leader seeks right to carry out industrial-scale enrichment. The Guardian’s Saeed Kamali Dehghan and Julian Borger: "Iran’s supreme leader said on Tuesday that his country would need to significantly increase its capacity to enrich uranium if it was to meet its long-term energy needs, in an unusually detailed speech highlighting the obstacles to a deal on its nuclear programme. Ayatollah Ali Khamenei conceded that Iran would not need to immediately increase its capacity but made clear that his government sought the right to carry out industrial-scale enrichment in order to be self-sufficient in nuclear fuel for its research reactors and a Russian-built power station at Bushehr. Enrichment capacity is the main obstacle to a comprehensive agreement between Iran and six major powers taking part in talks in Vienna. Western negotiators want Iran to be restricted to a research-scale capability to minimise the risk it could build a nuclear weapon at short notice but by publicly stating Iran’s position, Khamenei could have made it harder for his negotiators to compromise." More here.

Happy bday, WOTR! War on the Rocks celebrates its first birthday today.  It all started with a book review by Admiral James Stavridis.  See where they’ve been in the past year, here.

Iran delivered three planes to the Iraqi government. The NYT’s Michael Gordon and Eric Schmitt: "Deepening its involvement in the crisis in Iraq, Iran has sent three Russian-made attack planes to the Maliki government that could be deployed against the Sunni militants who have wreaked havoc on Iraqi military forces, American and Iraqi officials said Tuesday. Delivery of the Su-25 aircraft, which American officials said had already conducted missions in western and northern Iraq, is the latest step Iran has taken to help Prime Minister Nuri Kamal al-Maliki battle the forces of the Islamic State in Iraq and Syria, or ISIS, and expand its influence as Iraqi politicians struggle to form a new government." More here.

Pentagon press secretary Admiral Kirby to reporters yesterday: "We have no indications that there are Iranian ground troops inside Iraq… What I’ve said before remains true today: that we know that there are some Iranian operatives – Quds operatives inside Iraq that are training and advising some Iraqi security forces, but more critically, Shia militia… We understand that Iraq, as a sovereign nation, has that right to reach out to a neighbor if they see fit to ask for that support. What we’ve said – and nothing’s changed about what we’ve said – we’re not going to coordinate our military activities with Tehran."

Rep. Colleen Hanabusa, a Hawaii Democrat, is warning that the Obama administration is flying blind in responding to ISIS – a line that Sen. John McCain, R-Ariz., is also touting. Defense News’ John T. Bennett: "US Sen. John McCain is echoing a House Democrat’s warning that the Obama administration is flying blind in responding to a violent Islamic group’s destabilizing advance in Iraq. The Arizona Republican emerged from a closed-door classified briefing with senior Pentagon leaders to declare the administration "has no strategy" to combat the Islamic State of Iraq and the Levant (ISIL).

"…McCain is one of the most vocal critics of President Barack Obama and his administration on foreign policy and national security issues. But Rep. Colleen Hanabusa, a Hawaii Democrat, is not. Before July 4 fireworks exploded in skies across America, the House Armed Services Committee member ignited some rhetorical fireworks on Twitter. ‘National Security officials are indicating that we are making this up as we go along in Iraq,’ she tweeted July 3.

"Hanabusa and McCain share a view that the White House and Pentagon lack a plan in Iraq. But they diverge on whether the situation there and ISIL pose a direct threat to the United States." More here.

Iraq tells the U.N. that ‘terrorist groups’ have seized a former chemical weapons depot. Reuters’ Michelle Nichols at the United Nations and Missy Ryan in Washington: "…In a letter to U.N. Secretary-General Ban Ki-moon, made public on Tuesday, Ambassador Mohamed Ali Alhakim said the Muthanna facility north of Baghdad was seized on June 11. He said remnants of a former chemical weapons program are kept in two bunkers there. ‘The project management spotted at dawn on Thursday, 12 June 2014, through the camera surveillance system, the looting of some of the project equipment and appliances, before the terrorists disabled the surveillance system,’ Alhakim wrote in the letter dated June 30." More here.

The NSC’s Elizabeth Sherwood-Randall, the top nuclear proliferation and defense policy official, gets Obama’s nod for a big gig – deputy energy secretary. The NYT’s David Sanger with a personnel story: "…If confirmed by the Senate for the No. 2 job at the Department of Energy, which has been held for five years by Daniel Poneman, Ms. Sherwood-Randall would join the department at a moment when it is remaking the nation’s nuclear weapons complex and figuring out the delicate politics of the boom in oil and gas fracking. She would oversee the nuclear complex and a multibillion-dollar program to overhaul the nation’s nuclear laboratories as well as its program to update a modestly shrunken arsenal of nuclear weapons." More here.

Why do nukes keep causing trouble? Because they’re really old. The AP’s Robert Burns from Minot Air Force Base in North Dakota: "The Air Force asserts with pride that the nation’s nuclear missile system, more than 40 years old and designed during the Cold War to counter the now-defunct Soviet Union, is safe and secure. None has ever been used in combat or launched accidentally. But it also admits to fraying at the edges: time-worn command posts, corroded launch silos, failing support equipment and an emergency-response helicopter fleet so antiquated that a replacement was deemed ‘critical’ years ago." More here.