From Salon, 6/19/07:
http://www.salon.com/news/feature/2007/06/19/halliburton/
What Ted Stevens, Bolivian cocaine and Halliburton have in common
Or, how the Alaskan Inupiat Eskimos got a no-bid contract in South
America from the U.S. government.
By Michael Scherer
WASHINGTON --
Deep in the jungles of the upper Amazon, in a land rife with coca
plantations and drug runners, roughly 1,500 Bolivian soldiers and
police camp out each night at U.S. taxpayer expense.
They are offered three meals and a snack each day as part of a $31
million State Department effort to stop the cocaine trade at its
source.
Until this spring, the troops were fed by a local Bolivian company,
contracted to the United States through a competitive process for
$3.34 per soldier per day.
But in March, the same contract was awarded -- without competition --
to an Alaskan Inupiat Eskimo firm, Olgoonik Management Services, which
is headquartered 180 miles north of the Arctic Circle.
The new cost is $5.16 per soldier per day, an increase of 54 percent,
or about $1 million more each year.
Given the State Department's $32 billion budget, an additional $1
million for food hardly ranks as a major scandal.
But this tangled tale of how an Alaskan tribal company ended up in a
South American tropical forest sheds an illuminating spotlight on the
often-secretive world of federal contracting, an area of government
rife with abuse and poor oversight.
It is a story that involves Bolivian police, Balkan nationals, a
no-bid contract, a senator whose office has been contacted by the FBI,
emergency military rations and a helping hand from the biggest private
contractor in Iraq -- a recently spun-off division of Halliburton, the
Fortune 200 company once run by Vice President ***** Cheney.
It is also a story that squarely addresses one of the principal
concerns of lawmakers looking to reform federal contracting:
the ability of Alaska native companies to get no-bid government
contracts of any value.
During the Bush administration those contracts have grown fivefold and
now probably top $1 billion.
The so-called Alaska Native Corporation privilege came into effect in
1986 at the urging of Republican Sen. Ted Stevens of Alaska, the
powerful former chairman of the Appropriations Committee, who recently
announced that he has been asked for documents in a widening FBI
investigation of political corruption in his home state.
Stevens pushed through a law that exempted Alaska native companies
from many of the limitations that apply to other federal
minority-preference programs.
Unlike other small minority businesses, Alaskan firms can get "small
business" preferences even if they are owned by multibillion-dollar
parent companies and employ no native Alaskans.
One government contracting official recently told congressional
investigators that the program amounted to an "open checkbook" given
that there are no limits on the size of the awards.
"It always costs more money," another former Bush administration
contracting official told Salon, noting the lack of competition.
But the official held out little hope of reining in the program, given
the power of Alaska's congressional delegation.
"Senator Stevens still has a stranglehold on this stuff," the official
said.
In the meantime, the Alaska native program has been exploding.
In 1996, Stevens pushed through changes in the program that made the
application process easier, and by 1999 Alaskan tribes had figured out
how to take advantage.
According to the Government Accountability Office, the value of no-bid
contracts to Alaska native companies has grown from $180 million in
2000 to $876 million in 2004, the most recent year for which data is
available.
Native tribes now regularly win competitive and no-bid contracts
across government, supporting bases for the Army, doing security
upgrades for the State Department, supporting technology for NASA, and
operating detention facilities for the Department of Homeland
Security.
After the invasion of Iraq, a representative of one Alaska native
tribe boasted to the Los Angeles Times of working closely with Stevens
to ensure that it would be able to get a piece of the reconstruction
pie through no-bid contracts.
Critics have long complained that this exemption invites abuse by
ignoring the most basic taxpayer protection in contracting: an open
marketplace.
"Their preference has been transformed into a huge procurement
loophole," announced Rep. Henry Waxman, D-Calif., who chairs the House
Oversight Committee, in a recent think-tank speech.
The exemption has also been exploited by multibillion-dollar
companies, like Halliburton's former subsidiary KBR, which partner
with the native tribes to win lucrative business.
As Waxman put it, "Much of the work has been done by non-native
companies working as subcontractors."
In a GAO report last year, investigators uncovered various problems
with the Alaska native contracting program, including lax oversight,
confusion over the rules, and uncertain monitoring of costs.
Investigators reported that contracting officers often use the Alaska
native sole-source contracts simply because they are "easy and
expedient."
In one case at the State Department, an Alaskan firm received a
sole-source construction award even though its first proposal came in
at nearly twice as much as the government's initial cost estimate.
In another case, non-native executives at an Alaskan firm personally
pocketed 44 percent of profits from their contracts, apparently
evading the goal of the program, which is to help impoverished tribal
members in Alaska.
State Department officials also told investigators that they suspected
an unidentified Alaska native company was working as a "front" for a
large non-native business.
The Olgoonik Corp. is a relatively recent entry into the federal
contracting game.
It is a village-owned firm based in Wainwright, a tiny community on
Alaska's remote northern Arctic Ocean coast.
It listed 412 shareholders in 2003, many of whom are subsistence
hunters of seal, walrus, caribou and whale.
For most of its history, the company's main function has been
operating the local general store, the gas station, a restaurant and
the town hotel, as well as maintaining local sewer services and doing
other nearby construction, according to a recent report for the U.S.
Interior Department.
But in 1999, the corporation established several for-profit
subsidiaries, which have since won hundreds of millions of dollars in
federal contracts around the world.
In several of these projects, Olgoonik has partnered with KBR, which
was a subsidiary of Halliburton until it was spun off in April 2007.
One Olgoonik subsidiary, Kuk Construction, has long maintained a
partnership with KBR worth at least $125 million to provide
construction services to three Alaskan Army bases.
The same subsidiary has a $145 million contract with the State
Department to do security upgrades with KBR at foreign embassies.
A court filing in 2006 revealed that KBR had been the proposed
subcontractor in a 2004 effort by Olgoonik Management Services to
provide operations and maintenance support for the Army in Fort
Carson, Colo.
Like much in government contracting, the full story of how Olgoonik
arrived in Bolivia remains shrouded in secrecy.
The first public notice of the contract came in April, when the State
Department announced that it was awarding the five-year, $14.6 million
deal to Olgoonik for serving food to coca eradicators in Bolivia.
In the award, the government announced that "cost or pricing data" for
the contract was "not obtained," and the cost had been set through a
"negotiated proposal."
State Department spokeswoman Susan Pittman said there is nothing
improper about the price for Olgoonik's Bolivia work, which she said
was awarded on the recommendation of the U.S. Embassy in La Paz.
She insisted that comparing the cost of the no-bid Olgoonik contract
to its much cheaper predecessor was akin to "comparing apples to
oranges."
"You are comparing two different contracts," she explained.
"The quality may be changing. The quantity of the portions may be
changing."
The State Department is proud to support minority contractors under
federal preference programs, she added.
"When we determine that there are firms eligible to do the work and
the costs are reasonable, we are obliged to do that."
Richard Reierson, Olgoonik Management's chief executive officer,
declined to describe improvements in food quality or volume, though he
did confirm the contract cost.
In a May e-mail to Salon, he expressed pride in the company's work and
denied that KBR was involved in the Bolivian effort.
"KBR has no involvement or responsibility with this contract in
Bolivia," he wrote.
Similarly, Heather Browne, a spokeswoman for the former Halliburton
subsidiary, explained in a mid-May e-mail that KBR "is not part of any
Department of State contracts in Bolivia."
These initial explanations did not tell the whole story.
In January, Pete Diegel, a KBR official, traveled to Bolivia with two
Olgoonik officials, Reierson and Steve Cofer, according to a
first-person account of the visit.
They met with embassy officials and the Bolivian company that was then
feeding the coca eradication troops -- La Casa Mayor Military
Contracting.
"Pete Diegel said, 'We have the expertise,'" remembers Jorge del
Carpio, the Bolivian company's operations manager.
"He even told us that KBR was feeding 100,000 troops all over the
world."
As the main logistics supplier for the U.S. Army, KBR maintains a
multibillion-dollar business at military bases all over the world.
After initially denying being any "part" of the contract, KBR's Browne
admitted that the company "provided assistance to Olgoonik" under a
mentor program organized through the Small Business Administration.
"KBR provides this assistance at no cost," she wrote in a follow-up
e-mail.
"KBR does not stand to profit and did not participate in [the]
preparation of the proposal, award or execution of the Olgoonik
contract in Bolivia."
Nonetheless, when Olgoonik took over the contract in April, the
Alaskan company hired three former Halliburton employees, including
men from the Balkans who had recently been working in Europe.
The new hires did not last long in Bolivia.
About a month after their arrival, they were greeted by Bolivian
police at their office and escorted away.
Though the State Department confirmed this incident, neither Olgoonik
nor the State Department has given a reason for their abrupt
departures from the work site.
Once the contract was awarded, according to del Carpio, Olgoonik
purchased some of the old equipment from the LCMMC and hired much of
its old workforce.
The Alaskan company also began renting a central processing facility
from the Bolivian company.
Nonetheless, the transition was rocky.
On April 11, a local Bolivian newspaper called Extra ran a story
headlined "No Dan De Comer A Los Erradicadores" (Food Not Given to
Eradicators).
The story reported that for the first days of April, freshly prepared
meals had not been delivered to the 12 camps where the coca
eradicators live.
The workers subsisted instead on military Meals Ready to Eat rations,
resulting, according to the news story, in the medical evacuation of
some eradicators from their camps.
The State Department's Pittman confirmed the use of military rations,
though she denied that any eradicators were evacuated.
She said the State Department does not blame Olgoonik for the
problems, since proper paperwork had not arrived to let the company
begin work.
Del Carpio says his company first won the coca eradicator food
contract in 2000, after an international competition that included
dozens of firms.
LCMMC won the contract again in 2003, after another open competition.
When the coca eradication force was reduced from 3,000 to about 1,500
in 2004, the company renegotiated prices a third time.
"You would not believe how hard we had to negotiate these prices," del
Carpio said.
"We had to show our expenses. It was a very hard process."
He said he remains baffled about how the State Department negotiated
the $5.16 price.
If LCMMC had been allowed to bid, del Carpio said it could have
upgraded equipment and still earned a profit by charging about $4 per
soldier per day.
Over the five-year course of the contract, that could have saved U.S.
taxpayers about $3.2 million.
The savings might have been even greater if the contract had been
opened for other companies to bid.
But without an open competition, the best price for U.S. taxpayers
remains unknown.
But that isn't the way things are done these days.
In May, the House passed a bill that would limit the size of the
awards that Alaska native contracts can get without competition, but
there is no indication that the Senate will act on similar legislation
anytime soon.
Alaska's congressional delegation, including Sen. Stevens, is likely
to fight any such effort.
At a hearing last year, Alaska Rep. Don Young, a Republican, strongly
argued against any attempt to end the Alaska Native preference, even
suggesting that those who raise questions about the program have
dishonorable motives.
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Harry
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