Fuel Fraud Latest In Army Contracting Woes

CBS News Exposes Kickback Scheme, As Epidemic Of Wartime Military Contract Fraud Grows

The delivery of aviation gas to the giant U.S. air base at Bagram in Afghanistan is the latest case of fraud to hit a contracting system overwhelmed by war and practically begging to be ripped off, CBS News national security correspondent David Martin reports exclusively.

So far two former employees of Kellogg, Brown and Root have been arrested for their part in a scheme worthy of Tony Soprano.

The two KBR men, who worked for the U.S. military at Bagram, forged receipts for 80 tanker loads trucked in but never delivered, according to court documents. The Pentagon paid for the undelivered fuel while the drivers sold it on the black market. For their role in the scheme, KBR employees divvyed up an estimated $800,000 in kick backs, reports Martin.

That's just one of more than 80 criminal cases involving some $15 million in bribes. It is still a growing scandal which Pentagon officials expect will uncover hundreds of fraudulent contracts.

A new report by a blue ribbon panel is headlined, "Urgent Reform Required."

"It usually takes a crisis to make change," said Jacques Gansler, head of the panel. "We have a crisis."

The panel said the massive logistical demands of Iraq and Afghanistan exposed "key failures" in army contracting. The value of contracts awarded tripled to well over $100 billion, but the number of people managing those contracts stayed the same, Martin reports. There are currently 160,000 contractors working for the United States in the war zone but only 75 contract managers, and most of them are not trained.

"When you go over to Iraq and Kuwait you're going to see that even about 36 percent of them are certified for those jobs," said Gansler.

Untrained contract managers are one reason there is so much fraud.

"They're not trained to do it," said Gansler. "They're not used to doing it, and it's a little bit hard when somebody hands them a bag of money and says manage this - some of it might fall out."

Untrained or just plain dishonest, the fact is nearly 100 Army personnel are under criminal investigation, adds Martin.

The panel recommends adding 400 military personnel and about a thousand Army civilians and says another 600 Army staff should be assigned to the Defense Department's contract management agency to provide greater oversight of the contracts.

U.S. officials familiar with the panel's report did not say how much the additional personnel would cost. The Army's contracting work force now has just over 10,000 people, according to statistics compiled by the Defense Acquisition University at Fort Belvoir, Va.

The report calls for creating five new general officer positions within the Army's contracting work force, a move to attract talented men and women to a field most would otherwise avoid because of dim prospects for career advancement.

Citing key problem areas, the report said the Army's policies are outdated, training is lacking and a little more than half of the military and civilian contracting personnel are certified for their jobs.

Higher numbers of personnel, better quality and more clout within the Army's contracting ranks are expected to increase professionalism and decrease opportunities for misconduct as tens of billions of dollars continue to be spent on the wars in Iraq and Afghanistan, the officials said.

"The Army's difficulty in adjusting to the singular problems of Kuwait, Iraq and Afghanistan is in large part due to the fact that there are no generals assigned to contracting responsibilities," according to the report.

By comparison, the Air Force takes contracting much more seriously and officers in the field can aspire to positions of greater responsibility. It is not a coincidence that most of the ongoing investigations are targeting Army personnel, the panel said.

Since 2001, provisional offices have sprung up in the Middle East and Afghanistan to buy items such as bottled water, laundry services, barracks, food, transportation, and warehouse services.

But in certain places, such as Camp Arifjan in Kuwait, there were too few qualified people, too little oversight, high staff turnover, and poor record-keeping. In the midst of those shortcomings came a huge flow of dollars for the war, creating an environment ripe for misconduct and inefficiency.

A separate Army task force was assigned to examine a random sampling of the 6,000 contracts worth nearly $2.8 billion issued since 2003 by the Kuwait office in a search for rigged awards and sloppy work. That review is to be completed by the end of the year.

The Army Criminal Investigation Command already has 83 ongoing criminal investigations related to wartime contract fraud. Nearly two dozen military and civilian Army personnel have been charged or indicted and more than $15 million in confirmed bribes has changed hands, according to the command.

To federal acquisition experts, the Army's contracting problems come as no surprise. Following the end of the Cold War, defense budgets were cut sharply and so was the contracting work force.

Members of Congress derisively referred to acquisition personnel as "shoppers and buyers" and questioned why so many were necessary, according to Steve Boshears, chief knowledge officer at the National Contract Management Association in Ashburn, Va.

"Contract management was looked at as an administrative function - too much overhead and too hard to see the value it added," said Boshears, a retired colonel and a former Army contracting officer.

Over nearly a decade, few new contracting personnel were hired, which meant there would be a shortage of replacements when older workers retired. At the same time, contracting was becoming increasingly complex as the government outsourced more to the private sector using often subjective criteria.

Gone were the days where the lowest bid got the contract. Now, those making the decisions are expected to select the offer with the "best value" to the government and to perform detailed analyses of a company's past performance.

After 2001, when the amount of spending for the wars exploded and annual defense budgets exceeded $600 billion, the demands on this undersized, aging work force accelerated and led to the much-publicized breakdowns.

"This didn't happen overnight," Boshears said.