Democrats took control of the House of Representatives Thursday with a robust agenda, much of it focused on government oversight. Part of that focus is on firms that have received waivers from the Department of Defense despite indictments for overcharging taxpayers.
The incoming chairman of the House Armed Services Committee, Rep. Adam Smith, D-Wash., has promised more aggressive oversight–including possible subpoenas–of defense spending and contracting issues. A prominent congressperson on Smith’s panel is pushing the Pentagon for more information on why one contractor in particular got so many waivers, which she says raise “major red flags.”
In 2009, the Justice Department indicted a Kuwaiti-based defense contractor, Agility, for defrauding the government by inflating the cost of providing food to American troops throughout the Middle East during the height of the Iraq War. The waivers given to the company to allow it to continue servicing government contracts are under scrutiny by Speier.
Speier sent a letter, obtained by InsideSources, on Oct. 31 to Bruce Jette, the Assistant Secretary of the Army responsible for acquisitions, and Darrell K. Williams, the director of the Defense Logistics Agency, specifically seeking answers about the waivers that overrode Agility’s suspension. Defense officials have yet to provide a response, and they did not respond to a request for comment from InsideSources.
Federal prosecutors accused Agility, which won $8.5 billion in Pentagon contracts between 2003 and 2009, of double-charging for some logistics costs, submitting false invoices, and knowingly inflating the actual cost of the fruits, vegetables and other food it was purchasing for the Pentagon. The company, prosecutors said at the time, had “grossly overcharged” the government.
Agility pleaded guilty to a criminal misdemeanor offense of defrauding the U.S. Military in relation to a single $551 invoice unrelated to the original allegations, and it agreed to pay $95 million in cash to settle the parallel civil suit. Agility was barred from bidding on new contracts.
But Agility was able to continue doing business with the government in the aftermath of the allegations, and has recently received a new contract.
The company, which claims an array of former senior Pentagon officials on its board, utilized an obscure waiver system that incrementally extended Agility contracts even though the company was technically barred from receiving new government business.
Agility’s nine-year legal battle with the Justice Department began with a family feud.
In November 2005, Kamal Mustafa al-Sultan, the owner of a Kuwaiti firm that partnered with Agility on its initial Army contracts, filed a whistle-blower suit accusing Agility of defrauding the government. The suit raised eyebrows because Sultan wasn’t simply a business affiliate of Agility – he was also the cousin of its chairman, Tarek Abdulaziz Sultan al-Essa.
The Justice Department launched a multi-year criminal investigation into the company, which led to the November 2009 indictment. It also joined Sultan’s civil suit, which had been filed under the False Claims Act.
According to Department of Defense filings, the company “submitted false pricing information as part of its proposal for the award of the … contract; overbilled the Government for freight consolidation costs; manipulated and inflated prices, case sizes and shipping costs to obtain financial benefits, and failed to pass on payment discounts on food given to it by suppliers.”
Agility denied the accusations, saying in a statement at the time that it “is confident that once these allegations are examined in court, they will be found to be without merit.”
Agility was barred from bidding on government contracts, but Speier raises concerns in her letter that “Agility has been granted 15 waivers over a ten-year period to receive contracts for supplying food and water services.”
She continues: “This is unacceptable. If a contractor needs 15 waivers to keep doing business with the DOD, it is time to find a new contractor.”
The practice of waivers – where credibly-accused or convicted contractors continue working for the DOD – is relatively rare and typically limited to mission-critical operations related to national security, which may have been the case with Agility’s services in the Middle East. Compelling reason determinations are ultimately subjective, and Congress traditionally defers to military procurement officials’ judgment that a contract extension is necessary rather than simply convenient for both the government and the suspended contractor.
A federal forum known as the lnteragency Suspension and Debarment Committee provides annual reports to Congress on suspensions and debarments by cabinet agencies. In fiscal years 2010 and 2009, when ISDC began tracking data, DLA issued 488 suspensions and debarments; only Agility was granted waivers during that time period. In 98.8 percent of cases, DLA was able to find different ways to fulfill contracts than continuing business with banned contractors.
In the same time period, the Army issued 533 suspensions and debarments; again, only Agility received waivers. In 98.7 percent of cases, the Army found an alternative.
The U.S. General Services Administration must post the waivers online. The website currently lists 27 waivers—all issued by the DLA or U.S. Army—dating back to 2003. Agility has received 15 of the 21 issued since 2009, 71 percent of the total.
One DLA contract with Agility, to operate storage and distribution services in Iraq and Kuwait, was extended four separate times in 2010, for a total of at least $63 million. Another contract was extended twice, but DLA didn’t disclose how much Agility earned for its work. None of the Army’s seven waivers for Agility list a cost to taxpayers.
Neil Gordon, a Project of Government Oversight investigator who maintains the watchdog group’s Federal Contractor Misconduct Database, said the lack of standardization in information reported and the absence of adequate descriptions describing reasons for the determinations still present transparency and accountability concerns.
“Taxpayers have a right to know when the government awards our money to companies suspected or found guilty of serious misconduct,” he said. “It does appear that the Pentagon went overboard in issuing these waivers to Agility. By increasing the transparency of the process, Pentagon contracting officials might feel more compelled to issue these waivers carefully and when only absolutely necessary. Now that this process has finally come out of the shadows, it’s up to the public to press Congress and the White House to implement these improvements.”
After Agility settled its case in May 2017, it sought new logistics contracts with the U.S. military. In July 2018, the Pentagon awarded the company a $62.4 million contract to provide aviation fuel to support military operations in Guam. Agility, the lone bidder on the project, began shipping the gas in late August.
Reps. Smith and Speier are indicating a showdown between this waiver system and the 116th Congress. The Pentagon has sustained years of bad press alleging it is a behemoth unable to monitor the fairness of every purchase made on its behalf. Investigations by the new Congress could spark an era of aggressive Pentagon oversight.
Staff and freelance reporting contributed to this report.