Congress to reveal new allegations in multibillion Afghanistan food contract dispute

Congressional investigators will reveal new allegations on Wednesday claiming that Defense Department officials were in a near-panic in 2006 about how to resolve a six-year, multi-billion dollar dispute over the largest food-services contract in Afghanistan, after the Swiss company performing the work tried to double bill and defraud the Pentagon.   According to a Democratic ...

Photo by TED ALJIBE/AFP/Getty Images
Photo by TED ALJIBE/AFP/Getty Images
Photo by TED ALJIBE/AFP/Getty Images

Congressional investigators will reveal new allegations on Wednesday claiming that Defense Department officials were in a near-panic in 2006 about how to resolve a six-year, multi-billion dollar dispute over the largest food-services contract in Afghanistan, after the Swiss company performing the work tried to double bill and defraud the Pentagon.
 
According to a Democratic Briefing Memo from the committee's minority staff to subcomitte members, obtained exclusively by the E-Ring, the House Oversight and Government Reform Subcommittee on National Security has obtained new documents and internal Defense Logistics Agency emails that it claims illustrate how Supreme Foodservice has improperly charged $757 million to ship food supplies to forward operating bases in Afghanistan since 2006.
 
DLA, in rejecting Supreme’s fee invoice, argues that the cost of the shipments already were included in the base price of the contract.
 
“In other words, charging the distribution fee amounted to double-billing,” said the memo, which was distributed to subcommittee members in advance of a hearing on the controversy scheduled for Wednesday.
 
Witnesses expected to testify include Michael Schuster, managing director of Supreme Group’s logistics division; Daniel Blair, DOD deputy inspector general for auditing; and contracting executives from DLA.
 
The committee also will reveal that a DOD audit found Supreme built an unrequested $58 million warehouse in Helmand province solely to “strategically position themselves” to win more DOD contracts, and then tried to charge U.S. taxpayers for it.
 
The saga began in 2005 when Supreme was selected to deliver food and supplies to four U.S. bases in Afghanistan. The award was worth $726 million but had a maximum value over five years of $4.2 billion.
 
Before a single morsel was delivered to U.S. troops, however, DLA offered to vastly expand the scope of work, asking Supreme to deliver food to 68 bases across the country. But DLA and Supreme never settled on how much to charge for the new work, which required travel by helicopter and airplane to more remote locations. Supreme was given the OK to start work and bill later. That’s when the fight ensued. Six months into the contract, Supreme sent their bill for $33 million, causing alarm in DLA.
 
“I do not understand why we are so far apart on price,” a Supreme employee wrote to DLA in regards to helicopter fees in 2006.
 
According to the memo, “The DLA contracting officer responded: ‘The biggest issue that I'm having with the helo [helicopter] price is that it represents more than a 300% increase over what we've paid for air support to the FOBS [forward operating bases].’”
 
Later, in 2009, a DLA contracting officer wrote a colleague about her worries that DLA told Supreme to start the expanded work without an agreement on the costs for the service. “We did not have a way to verify precisely what we owed, but knew that we owed the vendor for the service.”
 
DOD was unable to resolve the pricing dispute for years, and so in December 2011 agency officials finally exercised their authority to unilaterally set rates. By DLA’s math, Supreme overcharged the U.S. and should repay $757 million. Supreme, however, claims DLA owes them $1.8 billion, and has challenged DLA’s decision in appeals proceedings.
 
Meanwhile, despite the dispute, DLA extended Supreme’s contract rather than open it to competitive bidding after President Obama announced the 2010 Afghan surge. Last year, with no alternative supplier in place, Supreme was delivering to 265 locations in Afghanistan.
 
In June, DLA finally switched providers and awarded a new $10 billion food distribution contract to Anham FZCO, of Dubai. But DLA also extended the Supreme contract for up to $1.5 billion through December 2013, with the intention of stopping that work once Anham was ready to take it over.
 
In the meantime, Anham has had a slow start. Supreme, wanting to keep working its current extention, appealed to the U.S. Government Accountability Office and won a court stay in February preventing DLA from starting Anham on the job. But a judge later ruled in favor of DOD’s wartime discretion to start the work. So last week, Supreme filed a second suit against the U.S., this time in the Court of Federal Claims to challenge DLA’s decision to switch providers.
 
DLA maintains Supreme improperly tried to charge an additional premium fee for delivering food to forward operating bases, when that cost should have been covered within Supreme’s base distribution fee. The agency argues that Supreme invoiced the Defense Department for both the basic fee and the premium fee. In addition, the premium sometimes included both the premium and the basic fee. This, DLA alleges, is the double billing. 
 
So DLA now claims it overpaid $567 million in premium fees to Supreme and another $177 million in double charges. Additionally, defense officials want Supreme to return $12 million it charged DLA “for transferring goods short distances from Supreme's warehouse in southern Afghanistan, including Camp Leatherneck which was directly across the street.”
 
Congressional investigators say they have many questions are hoping for more answers -- including why DLA took so long to resolve the dispute, extended the controversial contract repeatedly, and why Supreme has yet to provide satisfactory documentation justifying its fees.
 
"We will hear about how the Defense Logistics Agency continued to pay Supreme billions of dollars in spite of very strong concerns at the agency that taxpayers were being overbilled,” said Rep. John Tierney, D-Mass., ranking member of the subcommittee, in an email statement to the E-Ring. “It took DLA six years to demand that Supreme reimburse the government more than $750 million in overpayments. That is an astounding amount of money.”
 

Congressional investigators will reveal new allegations on Wednesday claiming that Defense Department officials were in a near-panic in 2006 about how to resolve a six-year, multi-billion dollar dispute over the largest food-services contract in Afghanistan, after the Swiss company performing the work tried to double bill and defraud the Pentagon.
 
According to a Democratic Briefing Memo from the committee’s minority staff to subcomitte members, obtained exclusively by the E-Ring, the House Oversight and Government Reform Subcommittee on National Security has obtained new documents and internal Defense Logistics Agency emails that it claims illustrate how Supreme Foodservice has improperly charged $757 million to ship food supplies to forward operating bases in Afghanistan since 2006.
 
DLA, in rejecting Supreme’s fee invoice, argues that the cost of the shipments already were included in the base price of the contract.
 
“In other words, charging the distribution fee amounted to double-billing,” said the memo, which was distributed to subcommittee members in advance of a hearing on the controversy scheduled for Wednesday.
 
Witnesses expected to testify include Michael Schuster, managing director of Supreme Group’s logistics division; Daniel Blair, DOD deputy inspector general for auditing; and contracting executives from DLA.
 
The committee also will reveal that a DOD audit found Supreme built an unrequested $58 million warehouse in Helmand province solely to “strategically position themselves” to win more DOD contracts, and then tried to charge U.S. taxpayers for it.
 
The saga began in 2005 when Supreme was selected to deliver food and supplies to four U.S. bases in Afghanistan. The award was worth $726 million but had a maximum value over five years of $4.2 billion.
 
Before a single morsel was delivered to U.S. troops, however, DLA offered to vastly expand the scope of work, asking Supreme to deliver food to 68 bases across the country. But DLA and Supreme never settled on how much to charge for the new work, which required travel by helicopter and airplane to more remote locations. Supreme was given the OK to start work and bill later. That’s when the fight ensued. Six months into the contract, Supreme sent their bill for $33 million, causing alarm in DLA.
 
“I do not understand why we are so far apart on price,” a Supreme employee wrote to DLA in regards to helicopter fees in 2006.
 
According to the memo, “The DLA contracting officer responded: ‘The biggest issue that I’m having with the helo [helicopter] price is that it represents more than a 300% increase over what we’ve paid for air support to the FOBS [forward operating bases].’”
 
Later, in 2009, a DLA contracting officer wrote a colleague about her worries that DLA told Supreme to start the expanded work without an agreement on the costs for the service. “We did not have a way to verify precisely what we owed, but knew that we owed the vendor for the service.”
 
DOD was unable to resolve the pricing dispute for years, and so in December 2011 agency officials finally exercised their authority to unilaterally set rates. By DLA’s math, Supreme overcharged the U.S. and should repay $757 million. Supreme, however, claims DLA owes them $1.8 billion, and has challenged DLA’s decision in appeals proceedings.
 
Meanwhile, despite the dispute, DLA extended Supreme’s contract rather than open it to competitive bidding after President Obama announced the 2010 Afghan surge. Last year, with no alternative supplier in place, Supreme was delivering to 265 locations in Afghanistan.
 
In June, DLA finally switched providers and awarded a new $10 billion food distribution contract to Anham FZCO, of Dubai. But DLA also extended the Supreme contract for up to $1.5 billion through December 2013, with the intention of stopping that work once Anham was ready to take it over.
 
In the meantime, Anham has had a slow start. Supreme, wanting to keep working its current extention, appealed to the U.S. Government Accountability Office and won a court stay in February preventing DLA from starting Anham on the job. But a judge later ruled in favor of DOD’s wartime discretion to start the work. So last week, Supreme filed a second suit against the U.S., this time in the Court of Federal Claims to challenge DLA’s decision to switch providers.
 
DLA maintains Supreme improperly tried to charge an additional premium fee for delivering food to forward operating bases, when that cost should have been covered within Supreme’s base distribution fee. The agency argues that Supreme invoiced the Defense Department for both the basic fee and the premium fee. In addition, the premium sometimes included both the premium and the basic fee. This, DLA alleges, is the double billing. 
 
So DLA now claims it overpaid $567 million in premium fees to Supreme and another $177 million in double charges. Additionally, defense officials want Supreme to return $12 million it charged DLA “for transferring goods short distances from Supreme’s warehouse in southern Afghanistan, including Camp Leatherneck which was directly across the street.”
 
Congressional investigators say they have many questions are hoping for more answers — including why DLA took so long to resolve the dispute, extended the controversial contract repeatedly, and why Supreme has yet to provide satisfactory documentation justifying its fees.
 
"We will hear about how the Defense Logistics Agency continued to pay Supreme billions of dollars in spite of very strong concerns at the agency that taxpayers were being overbilled,” said Rep. John Tierney, D-Mass., ranking member of the subcommittee, in an email statement to the E-Ring. “It took DLA six years to demand that Supreme reimburse the government more than $750 million in overpayments. That is an astounding amount of money.”
 

Kevin Baron is a national security reporter for Foreign Policy, covering defense and military issues in Washington. He is also vice president of the Pentagon Press Association. Baron previously was a national security staff writer for National Journal, covering the "business of war." Prior to that, Baron worked in the resident daily Pentagon press corps as a reporter/photographer for Stars and Stripes. For three years with Stripes, Baron covered the building and traveled overseas extensively with the secretary of defense and chairman of the Joint Chiefs of Staff, covering official visits to Afghanistan and Iraq, the Middle East and Europe, China, Japan and South Korea, in more than a dozen countries. From 2004 to 2009, Baron was the Boston Globe Washington bureau's investigative projects reporter, covering defense, international affairs, lobbying and other issues. Before that, he muckraked at the Center for Public Integrity. Baron has reported on assignment from Asia, Africa, Australia, Europe, the Middle East and the South Pacific. He was won two Polk Awards, among other honors. He has a B.A. in international studies from the University of Richmond and M.A. in media and public affairs from George Washington University. Originally from Orlando, Fla., Baron has lived in the Washington area since 1998 and currently resides in Northern Virginia with his wife, three sons, and the family dog, The Edge. Twitter: @FPBaron

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