Afghanistan’s Halliburton?

The Daily Beast ran a damning story yesterday about military logistics contractor Supreme Group, a European firm operating a multi-billion dollar operation in Afghanistan delivering food and other goods to U.S. troops there.

The firm is under investigation by the federal government for its billing practices.

Supreme confirmed to Newsweek it is the target of a federal investigation into its billing practices after an audit report this year lambasted both Supreme Group and the Defense Logistics Agency, which awards the firm most of its business. The report alleges, among other things, that Supreme was charging taxpayers nearly $4 just in freight costs for every pound of fruit and vegetables it flew into Afghanistan, racking up $454 million in costs.

Over-billing or not, it’s clear that Supreme is making enough money to provide its executives with a lifestyle most American taxpayers can’t even fathom.

At first blush, Michael Jacques Gans doesn’t appear to be your typical defense contractor. An attorney by training, Gans spends his spare time racing a mint-condition, sky-blue Bugatti race car—vintage 1927—on tracks across Europe. He doesn’t reside inside Washington’s Beltway, preferring instead his home in Germany or a multimillion-dollar duplex on New York’s Fifth Avenue, overlooking Central Park.

But based on accussations made by the government [PDF], it’s not hard to see why Gans, co-owner of Supreme Group, is living so well. Check out the PDF for the full report (if you have a few hours to kill), or read the Beast’s highlights. According to their report, the government alleges Supreme:

  • charged $455 million for food transportation flights. (The $3.74 price per pound shipped was an “oversight,” the Pentagon told auditors.) The auditors said Supreme’s original contract did not include a provision for flying food into the country, and that work was added without rewriting the contract.
  • charged as much as $8.35 per pound shipped when it used a helicopter instead of an airplane.
  • billed the Pentagon in one year for 8.8 million pounds of food flown by helicopter, when it really only flew 7.7 million pounds.
  • sought profits guaranteed at 10% for the airplane flights and 13% for helicopters.
The investigation is still underway, and it’s unclear what disciplinary actions, if any, will be taken. The article touches on the growing spending on no-bid contracts as well as the danger of the “revolving door” between contractors and government agencies, despite the mandatory “cooling off period,” which requires former public officials to refrain from working with their old agencies within two years of moving to the private sector. The poster-child in the Supreme case: Robert Dail, formerly of the Defense Logistics Agency (DLA), which awarded the contract to Supreme Group after the firm hired him as their U.S.-based president in 2009.

Even though Dail refrained from contacting his former agency, his firm managed to persuade DLA in 2010 to declare that Supreme Group was the “only” company that could provide food for America’s 100,000 soldiers in Afghanistan, and that requiring it to face competitive bidding would cause “mission failure.” That declaration pushed the firm into a category of elite contractors that get their work renewed without bidding.

The Pentagon’s growing reliance on such no-bid contracts alarms some watchdogs, who fear bypassing competitive contracting puts taxpayers at risk of being overcharged. The Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, recently calculated that the Pentagon awarded $140 billion in sole-source contracts (including Supreme) in 2010, almost triple the amount spent in 2001.

Allowing these no-bid contracts leads directly and almost certainly to the exact kinds of overspending being investigated here. Had Supreme Group had to bid for their contract, they couldn’t have gotten away with charging $8.35/pound for helicopter-delivered goods. Since they were the only company capable, as decided by their U.S. president’s former employer, price was not the question. As Occupy movements and political campaigns make financial wrongdoings their target, can the U.S. government afford to be awarding no-bid contracts to military contractors supporting wars seen unfavorably by the public?

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