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POGO Obtains Second Helping of “Compelling Reason” Memos

It took much longer than we expected, but the Project On Government Oversight can finally close the book on an inquiry into the government’s controversial decision to continue doing business with a contractor accused of defrauding the military.

Last week, the Defense Logistics Agency (DLA) provided POGO the seven compelling reason determinations it issued in 2009 and 2010 to justify extending contracts with units of Kuwaiti logistics company Agility. The DLA suspended Agility (formerly known as Public Warehousing Company KSC and PWC Logistics) in November 2009 after the company was criminally charged with submitting false information and manipulating prices on contracts to supply food to U.S. forces in the Middle East.

The Army also waived Agility’s suspension several times in 2009 and 2010 in order to extend contracts. POGO blogged about the Army’s compelling reason determinations back in December.

Suspended and debarred contractors may not be awarded new contracts or have their existing contracts renewed or extended unless an agency determines that there is a compelling reason (see FAR 9.405(a)) for waiving the suspension or debarment. Typically, this involves a finding that the contractor is the only one who can provide the good or service and/or there is a serious, overriding national security interest.

Between November 2009 and November 2010, the DLA waived Agility’s suspension seven times to extend three contracts. One was the subsistence prime vendor contract (aka “PV2”) with Agility subsidiary PWC Logistics Services to provide food to military dining facilities in Iraq, Kuwait, and Jordan. The PV2 is one of the contracts on which Agility now faces criminal fraud charges. The DLA justified the waiver on the basis that “if ordering under [PV2] ceases, there would be mission failure in Iraq and Kuwait.” The DLA approved a 180-day extension of the contract on November 16, 2009. The following May, the DLA extended the PV2 contract until December 4, 2010, due to difficulties in transitioning to the new vendor, the Dubai-based logistics company Anham FZCO, a company that also has a dubious track record as a supplier to the U.S. military.

The DLA issued four determinations to modify and extend a storage and distribution support services contract with Agility. At first, the DLA twice modified the contract and added nearly $8.8 million in funding because it determined that Agility was the only source capable of completing the work by the contractual deadline of August 31, 2010. At the start of June 2010, however, the DLA determined it had to extend the contract an additional six months and increase funding by $33.7 million in order to “ensure sufficient time for a quality transition” to a new vendor. On November 24, 2010—more than a year after Agility was indicted—the DLA extended the contract another six months, through August 31, 2011, at an additional cost of $20.6 million. At this point, the more cynical among you are probably wondering whether there was a genuine compelling reason to stay with this particular contractor or whether the DLA was unnecessarily slow-walking the contract transition.

The third contract for which the DLA waived Agility’s suspension was a contract with an Agility-led joint venture called AFH Fuel Services for fuel storage at the Air Force’s base at Ramstein, Germany. The March 25, 2010, memo approving a six-month, $60,000 extension of AFH’s contract does not state the specific compelling reason(s) behind the decision. In fact, three of the seven DLA memos lack the “reason” part of the compelling reason determination.

POGO requested these documents through the Freedom of Information Act (FOIA) last October after learning of their existence in a September 2012 Government Accountability Office (GAO) report. The GAO found that the Department of Defense (DoD) made a total of 14 compelling reason determinations during fiscal years 2009 through 2011—seven each by the Army and the DLA. The GAO did not identify the contractors involved. The GAO also found that the government was not keeping DoD compelling reason determinations in a public file as required by law.

It is galling that our government awards millions of dollars to companies accused of serious crimes of dishonesty, and the lack of transparency in this process adds insult to injury. Why and how often does the government do business with risky, nonresponsible contractors? Are agencies issuing compelling reason determinations only when necessary? The public should not have to rely on the haphazard, time-consuming FOIA process to get answers to these questions.