Lawmakers slam State, Defense officials for not sharing information on weapons dealer

Lawmakers sharply criticized officials from the State and Defense departments on Tuesday for failing to share information that might have prevented a Miami-based contractor from winning an almost $300 million contract.

Four executives and affiliates of AEY Inc. were indicted Friday on charges related to their shipment of defective Chinese ammunition to Afghan security forces under a Defense Department contract. On Tuesday, the House Oversight and Government Reform Committee questioned government officials on how AEY, owned by 22-year-old Efraim Diveroli, was able to win contracts repeatedly despite its dismal performance.

According to a committee report, Army officials failed to examine AEY's performance under previous Defense and State acquisitions before awarding the massive munitions contract, which may have led AEY to pass through so many loopholes.

Documents produced by the committee showed that well before AEY received its $300 million munitions contract, it had developed a dubious performance record for failing to deliver serviceable products and meeting deadlines. That information, however, was not shared with or requested by the contracting officer handling the munitions contract.

Defense previously had terminated at least five contracts and four delivery orders with AEY because of the company's inability to perform effectively. State had canceled two of its contracts with the company.

Under one terminated agreement, an October 2005 contract to supply U.S. soldiers with helmets, the helmets arrived dented and with peeling paint. One inspector classified them as "damaged goods," and said, "We don't want them." The contracting officer on the helmet acquisition told Oversight Committee investigators of Diveroli, "I just don't trust the guy," according to the panel's report.

In another instance in late 2005, Diveroli tried to explain away his failure to deliver 10,000 Beretta pistols under an Iraqi Security Forces contract by inventing excuses about a phony plane crash, alleged interference by the German government and a nonexistent hurricane that had hit Miami.

Cmdr. Robert Brooks, the contracting officer who ultimately terminated the pistols deal, also alleged in committee interviews that AEY repeatedly used bait-and-switch tactics by replacing nonconforming products in place of those required by the contract. Brooks classified AEY's performance as "extremely poor" and went so far as to describe the company as the worst he had dealt with in all of Iraq.

"That was my lemon I had to make lemonade out of," he said.

Prior to awarding the Afghan security contract, Defense contracting officer Melanie Johnson asked the Defense Contract Management Agency to review AEY's financial and transportation capability, as well as its accounting system.

Mitchell Howell, executive director of the Defense Contract Management Agency's ground systems and munitions division, said DCMA's pre-award survey was limited and it did not, therefore investigate issues associated with past terminated contracts.

"AEY had a history of satisfactory performance on similar contracts, showed increasing revenue growth, adequate capitalization and was considered low risk for the evaluated capabilities," Howell told the committee.

Nonetheless, it appears the source selection team still had concerns about AEY's ability to execute the munitions contract. While the team rated AEY's past history of on-time delivery and quality as "excellent," it found the company's history of international movement and experience as a systems integrator to be "unsatisfactory."

Johnson disagreed with the source selection team's conclusion and changed the "unsatisfactory" ranking to "good." She later told the committee that the change made a "difference" and that AEY "would not have gotten the award" without the adjustment.

Jeffery Parsons, executive director for Army Materiel Command's Provisional Contracting Command, said Johnson did not have access to any reports of poor past performance. Information on AEY's past contracts, including the fact that a number of these contracts were terminated for cause, were not included in the existing databases because they did not meet the dollar value threshold at which past performance information must be entered, Parsons said.

"Throughout the acquisition process, the Army followed all applicable procurement policies and procedures in making this best value award decision," Parsons testified.

He said the Army was initiating reporting changes that would require certain information, such as noncompliance with terms and conditions and termination for cause or default, to be entered into past performance systems regardless of the dollar value of the contract.

Army officials also agreed to work with State to improve interagency information sharing. Stephen Mull, acting assistant secretary for State's Bureau of Political-Military Affairs, testified that AEY and several of its affiliates, including Diveroli, were flagged on a department watch list maintained to identify potential illegal arms traffickers.

State uses this watch list when reviewing export license applications. The information on the database relating to AEY was not shared with the Defense Department during its contract award process. Johnson told committee investigators she was not even aware of the watch list's existence.

Mull said since much of the information on the watch list came from intelligence agencies and classified sources, it could not be shared freely. But he also said the agency would run the name of a potential contractor against the list if asked to by Defense and could consult with the originators of any classified information if there was a hit.

An investigation by Government Executive in April showed that AEY had been improperly designated as a small disadvantaged business less than a year before receiving the massive arms contract. Parsons, however, said AEY's small business status was not a factor in the munitions award.

Both Parsons and Howell testified that if all the information on AEY's past performance had been made available it was likely the company would have been deemed "not responsible" as a prospective contractor. The officials blamed AEY for failing to honestly disclose its contract terminations.

"This case is more about a contractor who failed to properly represent their company and failed to comply with the terms and conditions of the contract rather than a faulty contracting process," Parsons said.

Lawmakers showed little patience with department officials. Rep. Elijah Cummings, D-Md., said the contract award was the result of "serious communication problems, serious incompetence, phenomenal carelessness and a culture of mediocrity." Some suggested the munitions contract might not have even been necessary because there was a handful of NATO allies willing to donate similar stockpiled weapons at no charge to the United States.

"That such a bad actor could continue to receive federal contracts only strengthens my belief that a well-maintained database of current information on prior violations and other relevant information could be a valuable tool for contracting officers," said Rep. Tom Davis, R-Va. Davis referenced the database proposed by Rep. Carolyn Maloney, D-N.Y. (H.R.3033), currently pending review by the Senate Homeland Security and Governmental Affairs Committee.