Contingency Support Contractors Beware: The Agility Experience

One of the most amazing features of the conflicts in Iraq and Afghanistan was the explosive growth in the role of private contractors on the battlefield. There is some public awareness of this phenomenon due largely to press reports about a few private security contractors acting like Baghdad was the old West and a significant but not altogether unexpected degree of waste, fraud and abuse on the part of contingency support contractors. In 2010, there were more private contractors of all stripes in Iraq and Afghanistan, over 260,000, than there were coalition soldiers. These private contractors provided a wide range of services for the Department of Defense, Department of State and USAID ranging from supplying coalition personnel with food and fuel, running base operations, providing non-military communications, building schools, roads, sewer systems and electric generating stations, training Iraqi and Afghan military and police, serving as translators and even providing critical support to military operations. Over the course of the two wars, the United States has spent well in excess of $200 billion for contractor support.

Most of the money Washington devoted to contractor support was well-spent. In fact, it would have been impossible to conduct either conflict without the private sector. However, in the opinion of the Commission on Wartime Contracting, between $30 and $60 billion of the money spent was lost to waste and fraud. There were many reasons for this problem including high security costs, poor project planning and management, lack of adequate oversight by an overburdened acquisition workforce, the absence of well-defined requirements and performance metrics and the attitude that this was war and “damn the costs.” A few individuals went to jail for outright criminal fraud and a number of companies had charges amounting to hundreds of millions of dollars disallowed.

It all sounds very simple: greedy companies trying to take advantage of the U.S. government and cheat our men and women in uniform. The truth is a lot more complex. In some cases, in fact, it is the government that is in the wrong and the companies that are right.

Take the example of Agility (formerly known as Public Warehouse Company), a Kuwait-based company with overseas subsidiaries including in the U.S. It once was the second largest contractor in terms of contract volume, supporting U.S. forces in the Middle East. Agility is locked in a titanic legal struggle with the U.S. government, specifically the Defense Logistics Agency (DLA) and the Department of Justice (DOJ). Based on public legal filings, this situation could give both DLA and DOJ a serious black eye.

Agility was responsible under contract to DLA for providing food to coalition forces in Iraq, Kuwait and Jordan. By all accounts, its performance had been stellar. It always filled its orders, provided on time delivery and received nothing but accolades from customers up and down the supply chain.

Then Agility was indicted Nov. 9, 2009 on charges of fraudulently overbilling the military on unrelated contracts that paid $8.5 billion for distributing food to American soldiers in Jordan, Iraq and Kuwait. The source of the accusation was a former subcontractor that Agility had let go because of shady financial dealings of his own and who is suing Agility himself. To that accusation, DLA added some of its own, most particularly that Agility had inflated the price it charged on some food shipments and that the company’s bonus payments to subcontractors for rapid submission of their bills — a financing technique explicitly set out in Agility’s contracts with DLA — amounted to a kickback. A week after the indictment, the Pentagon suspended the company and more than 100 affiliates from doing new business with the government.

Two years have gone by and Agility and its subsidiaries are still suspended. More interesting, discovery by Agility’s lawyers has resulted in the unearthing of e-mails and documents that strongly suggest that both DLA and DOJ knew that there was no basis for the indictment. The alleged overbillings were either contractually authorized charges approved by DLA’s contracting officers or the result of changes in billing procedures that were mandated by DLA personnel. Agility has asked a federal court to dismiss the indictment.

Unfortunately, having tried for the brass ring of a major fraud indictment, neither organization now can simply back off. In fact, Agility alleges in a countersuit that DOJ pressured DLA to lower its evaluation of the company’s work at the time of the suspension, thereby depriving it of contractual rights to certain payments. Again, there are records of conversations that clearly show that DLA representatives were pressured to downgrade their evaluations of Agility in order not to undermine the government’s suit.

Contingency support contractors take great risks, financial and in many cases personal, to provide the logistics and sustainment support for U.S. forces engaged in conflicts overseas. Private logistics suppliers today are moving almost all the material, fuel, water and food for U.S. troops in Afghanistan – and taking all the risks. So when there is the risk they will get blindsided by their government customer, it might just make them hesitate the next time to apply for the job.