Congressional investigators have given the Defense Logistics Agency and the contractor that provides virtually all food supplies to U.S. troops in Afghanistan 10 days to explain why the military paid more than $750 million in what it now alleges were double-billed and excessive charges.
The House subcommittee in charge of national security oversight has called on DLA and the contractor, Swiss-based Supreme Foodservice, to produce all documents and calculations regarding the alleged overpayments under a contract to deliver “subsistence” supplies to U.S. military bases in Afghanistan since 2005.
In making public letters they sent late Wednesday to the DLA and Supreme Foodservice, subcommittee Chairman Rep. Jason Chaffetz (R-Utah) and ranking Democrat Rep. John F. Tierney (Mass.) criticized the contractor and the Pentagon’s contract management.
“It is outrageous that DLA could ever be in the position of possibly overpaying any vendor by three-quarters of a billion dollars — especially at a time when troop levels are being scaled back because funding is tight,” Chaffetz said.
In December, based on audits it conducted in 2008 and 2011 that found bloated billing, excessive profit margins and missing company documents, DLA calculated that it had overpaid Supreme by $756,908,587 and demanded full reimbursement within 30 days. After a Pentagon board rejected the company’s request to defer payment until an appeal could be heard, DLA in March began subtracting $21.7 million from an estimated $150 million in monthly payments to the contractor.
In a statement Thursday, Supreme’s Washington office said that such contract disputes were “not uncommon” and that the Armed Services Board of Contract Appeals would determine “the amount of refund due to DLA or payment due to Supreme.” Subcommittee aides said Supreme Foodservice has said it is owed about $1 billion in military underpayments.
“In the meantime,” the Supreme Foodservice statement said, “we continue to work well with DLA, performing the contract to extremely high standards. We remain focused on provision of support to the war fighters in some very challenging environments.”
DLA did not immediately respond to requests for comment.
Despite the military’s allegations about Supreme Foodservice, investigators said the company has been short-listed for a new, $10 billion, five-year food delivery contract to take effect in January. U.S. combat troops in Afghanistan, now totalling about 90,000, are due to be withdrawn by the end of 2014, with a follow-on training and counterterrorism force of undetermined size to remain.
Tierney said the subcommittee intended to examine how problems with the current contract, which has paid Supreme Foodservice about $5 billion over the past seven years, “will affect the impending award of the new contract.”
Discrepancies in the food service contract, one of the largest in Afghanistan, were first publicly revealed in a Defense Department Inspector General’s audit in March 2011. It said DLA “did not provide sufficient oversight of contract costs and performance,” failed to adhere to Pentagon and other government contracting rules and made significant overpayments.
DLA, Supreme Foodservice and the subcommittee agree that work under the initial contract rapidly expanded as the U.S. military presence grew in Afghanistan.
“When it was first awarded on June 3, 2005, the contract required Supreme to deliver food to four locations in Afghanistan,” Chaffetz and Tierney wrote to DLA Director Vice Admiral Mark D. Harnitchek. “Within three months, DLA radically expanded the contract to include an additional 64 forward operating bases in isolated and hard-to-reach locations. Today, the number of sites has swelled to 265.”
But “DLA and Supreme apparently never agreed on pricing terms for delivering food and supplies to the additional sites despite having agreed to expand the contract,” the letter said.
Instead, the two sides have been in dispute ever since over everything from the price of apples to the distance between Afghan locations by helicopter. When DLA came to the conclusion in 2006 that Supreme Foodservice’s charges were unjustified, it began paying only 75 percent of the billed amount, and subsequently reduced its payment to 50 percent. In December, DLA calculated it had still overpaid by more than $750 million.
Despite the findings of its own audits, however, DLA twice approved one-year extensions of the original contract, which was supposed to run for five years.
At a subcommittee hearing in December, Pentagon Inspector General Gordon Heddell called the Pentagon’s contract management failures and lost funds on the Supreme Foodservice contract “an example of just about as bad as it can get.”