Dubai Company Billed U.S. $900 for $7.05 Iraq Electric Switch, Audit Says

A U.S. contractor in Iraq overbilled the Pentagon by at least $4.4 million for spare parts and equipment, including $900 for an electronic control switch valued at $7.05, according to a new audit.

Based on the questionable costs identified in a $300 million contract with Dubai-based Anham LLC, the U.S. should review all its contracts with the company in Iraq and Afghanistan, which total about $3.9 billion, said Special Inspector General for Iraq Reconstruction Stuart Bowen.

“The audit found weak oversight in multiple areas that left the government vulnerable to improper overcharges,” Bowen wrote in the forward to his 30th quarterly report, released today. The contract in question was funded with a combination of money earmarked for Iraqi Security Forces and Army operations and maintenance funds.

Among the “egregious examples of overbilling” by Anham were $4,500 for a circuit breaker valued at $183.30, $3,000 for a $94.47 circuit breaker and $80 for a small segment of drain pipe valued at $1.41.

Bowen’s office called for an in-depth review of the entire contract after discovering “significant weaknesses” in government oversight, questionable competition practices and possible undisclosed ownership affiliations between Anham and some of its subcontractors.

Company Statement

Anham said in an e-mail statement today that the auditor’s “conclusions are false, without legal or factual justification.” The company said it worked closely with U.S. officials when it chose subcontractors and “not a single screw or nail was purchased without prior, advance approval by the U.S. government.”

Anham said it would work closely with the auditors “to resolve these inaccurate conclusions.”

Bowen’s latest tally of Iraq spending shows that six months before the remaining 46,000 U.S. combat troops are scheduled to leave Iraq, the Pentagon, State Department and U.S. Agency for International Development, since the Iraq war began, had executed 34,728 contracting actions or grants totaling $35.9 billion.

The special inspector general, created to serve as a watchdog over U.S. reconstruction aid in Iraq, questioned almost 39 percent, or $4.4 million, of the $11.4 million in contract costs it reviewed.

Those costs, it said, “appear to be not fair and reasonable or were not properly documented.”

Undisclosed Ties

In one case, Pioneer Iraqi Trading Co., an Anham subcontractor, charged the U.S. $900 for a water level control switch that a competitor had offered for $7.05.

A member of the family group that owns, through a subsidiary, 50 percent of Anham also owns a 90 percent share in Pioneer, though this relationship was never disclosed to the Defense Contract Management Agency, which oversees military contracts, Bowen’s office found.

“The lack of transparency regarding the relationship between Anham and its subcontractors calls into question whether Anham used due diligence to ensure that the U.S. government received a fair price for the goods and services it purchased,” the inspector general’s report concluded.

In other cases, Anham used subcontractors to purchase items that could have been bought directly from the manufacturer at lower prices, the report said.

Loudspeaker Charges

When Anham was asked to buy a loudspeaker system to alert warehouse employees of any danger, it chose not to buy the system directly from the manufacturer at the retail price of $44,615, the report said.

Instead, Anham sought bids from subcontractors and paid a company called Knowlogy $90,908. That price included $20,000 for installation, even though the system setup meant little more than wheeling it into place and plugging it in.

Privately held Anham LLC is a contracting firm for projects throughout the Middle East, Asia, Europe, and North Africa. It provides vehicle, transportation, construction, facilities management, procurement, food, power generation, health management, surveillance and training services.

Based on all the questionable costs it found, the special inspector general “believes that all costs under this contract should be carefully examined, as well as all contracts awarded to Anham,” the report said.

Cost-Plus Contract

The U.S. military awarded Anham in September 2007 the Iraq contract, with a ceiling price of $300 million to operate and maintain two warehouse and distribution facilities in Abu Ghraib and Umm Qasr, Iraq.

The contract, at its conclusion, had obligations of $119.1 million, of which at least $55 million was spent by subcontractors, the report said.

The contract was structured on a “cost-plus” basis, meaning the government must reimburse Anham for all its costs, instead of agreeing to a fixed price.

The Central Command Joint Theater Support Contracting Command, which awarded the contract, partially agreed with Bowen’s recommendations. The Defense Contract Management Agency agreed to perform a new review of Anham’s purchasing system.

To contact the reporters on this story: David Lerman in Washington at dlerman1@bloomberg.net; 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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