The fast-growing Northern Virginia contractor on its way to becoming a multibillion-dollar company had inked yet another important deal with a federal agency. But then a bureaucrat at the Department of Veterans Affairs stepped in, raising troubling questions about the contract and suddenly halted all work.
FedBid, the Vienna-based company that lists senior Pentagon officials as advisers and has connections all over Washington, mobilized quickly. It dispatched a billionaire investor and a retired Army general to lean on then-VA Secretary Eric Shinseki and the VA chief of staff, pressing them to lift the moratorium with urgent e-mails and phone calls.
And the company, which runs Web sites that contractors can use to bid for government business, went after Jan Frye, the VA procurement official who issued the moratorium.
“Need to assassinate his character and discredit him,” read an e-mail from a top executive in 2012. The firm also vowed to “unleash the hounds” and “take off the gloves” in its “storm the castle” campaign to win back the business.
It worked. Within days, the moratorium was lifted. FedBid’s business began to hum once again. And the power play was feted with a triumphant congratulations from the company’s chief executive.
In an e-mail with the subject line “We are back in VA!” chief executive Ali Saadat thanked AOL founder Steve Case, whose venture capital firm had recently invested $25 million in FedBid and who had contacted Shinseki through his private e-mail account on a Sunday evening. Case “started our first punch,” Saadat said. He also thanked retired Army Chief of Staff Gen. George Casey Jr., a member of FedBid’s board of directors, for playing “his role as the heavy handed puncher.”
The intense pressure involving highly influential Washington players is detailed in a recently released VA Inspector General report, which is unusually revealing in its accounting of the kind of lobbying that happens every day in Washington but is rarely laid out so clearly.
The investigation found that FedBid executives worked to protect what they considered a valuable inside source: Susan M. Taylor, the deputy chief procurement officer with the Veterans Health Administration.
In its 80-page report, the inspector general found Taylor helped steer the contract to FedBid, then acted in concert with the company as it fought aggressively to overturn the moratorium. Further, the inspector general found that Taylor “misused her position and VA resources for [FedBid’s] private gain” and that she “interfered” with the inspector general’s investigation.
It also found that FedBid executives were part of a “concerted effort by all parties to willfully deprive, obstruct, and discredit Mr. Frye and unduly influence VA decision-makers.”
In response to the report, VA spokeswoman Genevieve Billia said the agency “takes any allegations about . . . employee misconduct very seriously and appreciates the work completed by the inspector general.”
The inspector general’s report did not address Taylor’s motivations for going to such “extreme measures” to help FedBid but referred the matter to the Justice Department. The report said the Justice Department declined to prosecute in favor of the VA taking administrative action.
Taylor, who has been a federal employee for nearly 30 years, remains employed at the VA. The agency said it is reviewing the evidence and weighing administrative action against her.
In a brief interview, Taylor said: “There are many mistakes and inaccuracies in that report.” She also added that the VA’s use of FedBid saved taxpayers $65 million over two years. But she declined to comment further on the advice of her attorney.
In a statement, FedBid justified its efforts to save the contract, saying it “took appropriate actions to protect its ability to lawfully perform the business services it was contracted to provide with VHA.”
Case’s venture capital firm, Revolution Growth, said the report “confirms that there have been savings to the taxpayers thanks to FedBid. At the same time, we take the report’s negative findings seriously, and are working with FedBid to ensure that an appropriate response is made and appropriate measures are taken.”
FedBid did not make Casey available for comment. Shinseki did not respond to requests for comment.
FedBid has built a thriving business over the last decade helping the government hold what are known as “reverse auctions.” Through FedBid Web sites, federal contracting officials post solicitations for items such as office supplies, computer equipment or furniture. Companies submit bids for the work and are told through the site whether they are the lowest bidder. If they aren’t the lowest bidder, they can try again with a reduced price, which ultimately should save taxpayer money.
The government’s reliance on reverse auctions has recently exploded, with FedBid leading the way. The company said that between 2007 and last year, the federal government made 131,623 awards through FedBid, totaling $8.2 billion, which represented nearly $1 billion in savings. In 2013 alone, FedBid said $1.8 billion in government contracts were awarded through its system, saving taxpayers $160 million.
In addition to creating savings, FedBid’s system creates efficiencies and “increases the participation of small, minority and local businesses,” it said.
Still, members of Congress and watchdog groups have raised concerns about the cost savings and the extent of competition in reverse auctions. A Government Accountability Office report found that more than a third of reverse auctions in 2012 had no competitive bidding, which is needed to drive prices down. And the American Legion complained in testimony to Congress that the system “is putting veteran-owned small businesses at risk and could also be serving to undermine the entire procurement process.”
After the inspector general noted late last year that “reported claimed savings . . . were not reliable” for reverse auctions, VHA reinstated its moratorium on reverse auctions.
Before moving to the VHA, Taylor used FedBid implement reverse auctions at her previous agency, the Pension Benefit Guaranty Corp., she told the inspector general. And in 2010, shortly after she joined the VHA, home of the largest integrated health-care system in the United States, she e-mailed FedBid officials telling them of her new role and that the agency was not doing reverse auctions.
“I would like to introduce them to this process as a way to save money on supply purchases,” she wrote, according to the inspector general’s report. “VHA currently spends over $13 billion annually on its procurements so there appears to be a huge opportunity here.”
She asked if anyone from FedBid could make a presentation to the agency.
After the presentation, a contracting official told the inspector general that “FedBid aggressively pushed VHA to immediately award a sole-source contract but that he resisted the idea.”
He said that FedBid was the only firm Taylor “ ‘advocated or pushed’ to her contracting staff to use; so FedBid was the only reverse auction service provider that garnered their attention,” according to the inspector general’s report.
Taylor pressured contracting officials to rush the process, the inspector general found, giving other firms less than two days to respond, and one of those days was a federal holiday. Since FedBid had advanced knowledge of the bid, it had a “competitive edge.”
That edge was amplified when Taylor routinely touted FedBid’s price — $1 a year — without mentioning that it also charges a transaction fee of up to 3 percent of the contract’s value, which the government pays, the inspector general found. FedBid executives “falsely claimed that their reverse auction services were free or at no cost to the government, and they took significant measures to disguise who actually incurred the cost of the transaction fees charged by FedBid, making it look as if the seller of the goods or services paid the fees instead of the government,” the report said.
In the statement, FedBid said “our company has always been transparent about its fee structure and the savings the FedBid marketplace can facilitate when buying commodity goods and simple services. It is important to point out, as our data demonstrates, that this report does not dispute that the FedBid marketplace stimulated competition that resulted in lower prices for VHA.”
In 2012, after the contract was awarded, Frye, the VA’s senior procurement officer, wrote in an e-mail to VA contracting officials that he had grown concerned that they were “turning the process over to FedBid, without the appropriate oversight” and that it was causing “significant perturbations in the VA supply chain” and “potential increased costs.”
He had also started to hear a “groundswell of complaints from our suppliers.” As a result, he directed a moratorium on reverse auctions throughout the VA, the inspector general said.
As the moratorium dragged on, the company said it could cost it as much as $3.6 million in 2012, and it increased its pressure on top VA officials. In an e-mail to the VA chief of staff, Casey, the retired Army general, wrote: “It’s been 11 days since FedBid was cut off without any explanation. . . . I would appreciate hearing something concrete from you.”
By then Congress had become concerned about the contract and sought information about the use of FedBid. Taylor was tasked with writing a white paper to respond to the concerns and sought help from FedBid executives in crafting the responses, the inspector general found.
“I’m getting really weary from all this as I’m sure you can tell,” Taylor said in an e-mail to one of FedBid’s top executives. “I will do my best to continue to help you survive.”
But FedBid’s success in having the contract reinstated was short-lived. Earlier this year, the VHA canceled its contract with FedBid.
As for Taylor, she was offered a top procurement job with the Department of Energy last month before the inspector general’s report became public, according to a person with knowledge of the situation who was not authorized to speak publicly. The offer was rescinded once department officials became aware of the report, the person said.
With the Justice Department declining to prosecute, Rep. Jeff Miller (R-Fla.), the chairman of the House Committee on Veterans’ Affairs, called on the VA to act: “This report documents extensive unethical — if not illegal — behavior that VA leaders must deal with swiftly and decisively.”
Alice Crites contributed to this report.