Audit: Army, Interior broke law by awarding contract to Alaska native corporation

August 17, 2011

The Army and the Department of the Interior violated federal procurement law when they awarded a contract to an Alaska native corporation and allowed it to pass on most of the work to other companies, federal auditors have found.

United Solutions and Services was hired by the Army in September 2008 under a $250 million contract awarded without competition. It was asked to perform a variety of tasks, including launching a global campaign to prevent sexual assaults in the military.

Though the corporation was tiny and operated out of an executive’s home in Delaware, it qualified for the no-bid deal because it was 51 percent owned by a native corporation called Cape Fox. The contract was managed for the Army by an acquisition office at the Interior Department.

Auditors examining the deal found that Army and Interior officials knew that the corporation, known as US2, “was too small to do all the work itself.”

“With the Army’s knowledge, the firm subcontracted the majority of the awarded contract to more established companies,” said a July 14 report by the Interior Department’s Office of Inspector General. “As a result, the contract with US2 violated laws applicable to contracts awarded based on a firm’s status as an Alaska native corporation requiring the firm to agree to do at least 50 percent of the work itself,” the report said.

A US2 spokesman said the company did what the government asked and followed the rules. As of June, “US2 had achieved performance of at least 50% of the contract cost on a cumulative basis,” the spokesman said in a statement.

“The OIG made no specific finding of wrongdoing by US2,” the spokesman said.

An Army spokesman did not respond to questions. An Interior spokesman said that, “consistent with the IG’s findings and recommendations, Interior has discontinued issuing task orders against this contract.” The Interior Department requested that the inspector general’s office conduct a review of the contract in response to a story by The Washington Post last year.

The story was part of a Post investigation of Alaska native corporations, which were formed by Congress four decades ago to help impoverished native people.

More than $29 billion worth of contracts has been awarded to the corporations, known as ANCs, over the past decade, most of it under special rules that allow them to receive contracts of any size without competition. But only a tiny fraction of the money went to native shareholders, the Post investigation found.

Instead, the contracts enriched nonnative executives and employees, in part because work was often passed on to more established nonnative firms. For instance, US2 won a contract worth up to $250 million — the value of which was later increased by the Army to $375 million — even though it was run from a nonnative owner’s living room and the firm had little meaningful experience.

US2 had no operations in Alaska and no native executives or employees. The year before, it claimed just $73,000 in revenue, much of it for janitorial services.

Army officials have said that they hired US2 for a wide array of tasks because they needed the work done in a hurry and did not have enough procurement workers to arrange for the work.

The audit by the Interior inspector general’s office said the contract with US2 was part of a pattern of poorly managed contracts awarded through the department’s contracting office in Sierra Vista, Ariz.

The inspector general report said that office “does not adequately perform price reasonableness determinations when awarding contracts or effectively monitor subcontract limitations when warranted.”

The vast majority of the contracting work in the office was being done on behalf of other agencies, most notably the Defense Department.

In the case of US2, the contracting office overlooked evidence of problems, the auditors found.

“Despite receiving reports showing that US2 has been non-compliant with 8(a) subcontracting limitations for more than 21 / 2 years, the CO did not take effective actions to either correct the problem or terminate the contract for non-compliance,” the report said.

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