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Pentagon overpaid oilman millions, audit finds

By Penn Bullock and Kimberly Kindy
Friday, March 18, 2011; 2:38 PM

A Pentagon audit has found that the federal government overpaid a billionaire oilman by as much as $200 million on several military contracts worth nearly $2.7 billion.

The audit by the Defense Department's inspector general, which was posted on the Pentagon's Web site this week, estimated that the department paid the oilman "$160 [million] to $204 million more for fuel than could be supported by price or cost analysis." The study also reported that the three contracts were awarded under conditions that effectively eliminated the other bidders.

Harry Sargeant III, a well-connected Florida businessman and once-prominent Republican donor, first faced scrutiny over his defense work in October 2008, when he was accused in a congressional probe of using his close relationship with Jordan's royal family to secure exclusive rights over supply routes to U.S. bases in western Iraq.

Rep. Henry A. Waxman (D-Calif.), who led the probe, asserted in a letter to Defense Secretary Robert M. Gates that Sargeant had won the three jet fuel contracts, despite having among the highest bids, because he had an effective monopoly over the routes. Waxman accused Sargeant and his company of price gouging and "engaging in the worst form of war profiteering."

Waxman said in a statement Thursday that the report "confirmed what we found in 2008: the International Oil Trading Company overcharged by hundreds of millions of dollars while the Bush administration looked the other way."

Waxman called on Sargeant to repay the Pentagon.

Sargeant's company, in Boca Raton, Fla., did not return phone calls seeking comment. An attorney for Sargeant, Ron Uscher, declined to comment. In an interview with The Washington Post late last year, Uscher said that Waxman's investigation was politically motivated and that his client's company had done nothing wrong.

"A guy like Harry Sargeant has a lot of targets on his chest," Uscher said. "He's a rich guy, an oil guy, and he is bidding on war contracts."

Waxman's concerns in 2008 prompted the Defense Department's inspector general to begin auditing Sargeant's company in 2009. Three days after the probe began, Sargeant secured another fuel contract from the department, valued at up to $1 billion.

A Defense Department spokesman said fuel deliveries on that contract ceased in early 2010, coinciding with U.S. troop withdrawals from Iraq. The deal earned Sargeant's company $123 million.

The audit remains classified, but the department's inspector general's office released a summary of its findings Tuesday. It does not accuse Sargeant of wrongdoing, but it corroborates some of Waxman's findings.

Waxman had calculated that the department would have saved at least $180 million by choosing the lowest bidders on fuel contracts awarded to Sargeant.

The audit found that the prices paid to Sargeant were not reasonable because "no one else could transport the fuel through Jordan."

Bullock is a freelance journalist.

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