Pentagon Hit for Lax Oversight of $4.2 Billion Afghan Food Supply Contract

U.S. Defense Department personnel overseeing a $4.2 billion food supply contract, one of the largest in Afghanistan, failed to prevent overpayments and potentially incorrect charges, according to the Pentagon inspector general.

Supreme Foodservice AG of Ziegelbrucke, Switzerland may have been overpaid $124.3 million for transportation and corrugated packing boxes, according to the report released late yesterday. Pentagon personnel also had no assurance that billings for another $103 million in boxes was accurate or “even chargeable to the contract,” it said.

The company also was paid about $455 million for airlifting fresh fruits and vegetables from storage areas in the United Arab Emirates to Afghanistan without military personnel ensuring the prices were “fair and reasonable,” according to the audit.

The audit was mandated by Congress in the fiscal 2008 defense bill and required the inspector general to identify “potential fraud, waste and abuse” in contracts for logistical support for Iraq and Afghanistan.

The Defense Department, State Department and U.S. Agency for International Development paid $17.7 billion to about 7,000 contractors and aid groups from fiscal years 2007 to 2009 for Afghanistan services, according to the Special Inspector General for Afghanistan Reconstruction.

Photographer: Romana/AFP/Getty Images

Supreme Foodservice was paid about $455 million for airlifting fresh fruits and vegetables for U.S. troops in Afghanistan without military personnel ensuring the prices were “fair and reasonable," according to an audit. Close

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Photographer: Romana/AFP/Getty Images

Supreme Foodservice was paid about $455 million for airlifting fresh fruits and vegetables for U.S. troops in Afghanistan without military personnel ensuring the prices were “fair and reasonable," according to an audit.

Supreme Foodservice AG provided food and non-food distribution as required while Defense Logistics Agency personnel “did not adhere” to federal regulations for making contract provisions final “in a timely manner.” They also failed to set up quality assurance and other procedures “to monitor contractor costs and performance,” it said.

Contract Renewed

The Defense Logistics Agency as of last month has paid the company $4.2 billion on a contract awarded in December 2005. It’s been renewed in December for one base-year and two six- month options, said spokesman Michelle McCaskill in an e-mail.

A solicitation will be issued in April to compete future work, she said.

“The Defense Logistics Agency works closely with the DoD Inspector General, using IG audits as tools for maintaining or improving the efficiency and effectiveness of its operations,” she said. “We take each audit seriously and often implement applicable improvements before the audit is publicly released.”

Principal Deputy Assistant Secretary for Logistics Alan Estavez said in an e-mail statement, “We take seriously the issues raised in the report which identifies potential, not validated, overcharges in the administration of contracts and will move to recoup validated overcharges.”

Recouping Overcharges

Still, “the report does not address this issue in the context of wartime Afghanistan, where flexible decisions are being made to ensure superior support for our forces, knowing that any overcharges can be recouped,” he said. “This contract supported a five-fold increase in troop levels in Afghanistan, and increased the number of delivery locations from four to over 150.”

Troy Hughes, the U.S. government contracts counsel for Supreme Foodservice, said in a e-mail the company has not discussed the report with the inspector general or DLA personnel.

The audit recommended that DLA in future contract modifications review Supreme Foodservice “proposed profit rates to ensure the rates reflect any reduced cost risks as a result of more than four years of actual contract performance.”

Profit Rate

The company has claimed profit rates of 13 percent for helicopter costs, 10 percent for fixed-wing aircraft and 9 percent for truck costs, the audit said.

Supreme Foodservice between December 2005 and December 2008 was overpaid an estimated $98.4 million for transportation costs in part because the reimbursement rates “were significantly higher than the rates needed to reimburse the vendor for costs and associated profits,” the report said.

The company within that $98.4 million was overpaid about $19.8 million for helicopter transport costs, said the audit.

Supreme also may have been overpaid a $1.8 million performance bonus because Pentagon personnel didn’t adequately review company claims.

The payment was based on records indicating the company achieved a 99.4 percent order “fill-rate” during the six-month period ending December 2008. The audit concluded that Pentagon contracts officers reviewed only 1.6 percent of orders to determine the high rate.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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