The private contractors and government employees skimmed millions from the Army Corps of Engineers in what authorities have described as one of the most brazen contracting scams in federal government history.
From 2007 through September, the contractors and two program managers at the Army Corps inflated $25 million in contract orders by $20 million — pocketing the proceeds to buy cars, flat-screen televisions and expensive jewelry, federal prosecutors allege.
So where was the oversight? And how did the scam go on for so long?
Experts say taxpayers should not be surprised: It was only a matter of time.
“These guys took advantage of a number of well-known huge gaps and flaws,” said Charles Tiefer, a University of Baltimore professor who monitors contracting. “These are gaps that everyone in the oversight community knows should be closed. . . . This was a failure of the system as a whole, not one little hole in the armor.”
Part of the problem, contracting specialists say, was that the Army Corps program managers were high enough in the organization that there was to check their work.
Another issue: The federal government can’t agree on which agency should have overseen the work.
In response to a Washington Post query in 2010 about a contract at the center of the alleged scheme, an Army Corps spokesman suggested that his agency was not responsible for overseeing the contract, known as TIGER, and directed questions to the Small Business Administration and the Department of the Interior. He noted that those agencies have oversight of Alaska native corporations. Such a company, EyakTek, was the prime contractor on TIGER.
The SBA offered a contradictory interpretation. In its own statement, the SBA said, “The rules and regulations governing federal contracting require the procuring agency to oversee each of their own contracts.”
In other words, the SBA says it was the Army Corps’s job to supervise EyakTek and TIGER.
Still, the SBA had come across one of the players in the case before the arrests were announced. In November of last year, the Small Business Administration sent one of EyakTek’s subisidiaries, EG Solutions, a letter saying it was being suspended from federal contracting work because “there is adequate evidence” that the company “committed fraud or a criminal offense in obtaining and attempting to obtain contracts.”
The letter was addressed to Harold F. Babb, who served as contracting director for EyakTek and EG Solutions. Babb was one of those later indicted in the kickback scandal.
The suspension and Babb’s arrest have raised questions on Capitol Hill. Rep. Darryl Issa (R-Calf.), chairman of the House Committee on Oversight and Government Reform, has asked the SBA to explain why its officials suspended EG Solutions but took no action against EyakTek, even though Babb was the contracting director at both companies.
In a statement, EyakTek said Babb’s activities at EG Solutions raised no red flags within because he “was not involved in the sourcing or administration of individual orders . . . nor was he involved in the selection of teaming members or suppliers related to individual contract orders.”
The scam was uncovered, authorities say, when federal agents in an unrelated investigation last year began scrutinizing Nova Datacom, whose chief technology officer has admitted to playing a key role in the scheme. That man later became an FBI informant.