International Herald Tribune: U.S. widens contract fraud inquiry to include military’s food suppliers

The International Herald Tribune reports that a company being paid $1 billion per year to provide meals in Iraq is under investigation for price-gouging. The company, formerly Public Warehousing, now Agility Logistics, appears to be so well-connected that ConAgra, Tyson Foods and Sara Lee were excluded from at least some business. (Scratch the surface here, I’m afraid, and we’ll find firms complaining – nominally – that other peole are stealing – when what they’re actually upset about is not the stealing – but the other people who are doing it.
Federal agents are investigating whether several large food companies charged the government excessively high prices for supplies to U.S. troops in Iraq and Kuwait, according to administration officials.Widening their previously disclosed inquiries into contract fraud and corruption in Kuwait and Iraq, investigators from the Justice and Defense departments are examining deals that Sara Lee, ConAgra Foods and other U.S. companies made to supply the military, officials said.

The inquiry centers on whether the companies overcharged Agility Logistics, a Kuwait-based company formerly named Public Warehousing that is the U.S. Army’s principal food supplier for the war zones. Investigators are also reviewing whether Agility Logistics improperly took payments from the food companies.

Agility Logistics, which supplies enormous amounts of fruits, vegetables and meats for more than 160,000 troops in combat zones, said in a statement that it had done nothing wrong and was fully cooperating with the investigation.

But a Justice Department lawyer, Brian Mizoguchi, told a Federal Claims Court judge in Washington on June 12 that the company’s business arrangements were the target of “a very large and active investigation into criminal fraud involving amounts in the hundreds of millions of dollars.”

“It relates directly to the contracts,” Mizoguchi said, “because it relates to the pricing and costs under those contracts.” Agility Logistics receives more than $1 billion a year to feed troops in Iraq and Kuwait.

The investigation, which was first reported Wednesday in The Wall Street Journal, is also focusing on army officials who picked the food companies that are suppliers to Agility Logistics.

Procurement specialists said that once vendors like Agility Logistics receive guidance from the U.S. Army Center of Excellence, Subsistence at Fort Lee, Virginia, on what should be on the menu in chow halls, the vendors seek suppliers for that food. In some cases, the army designated specific companies to provide certain foods, like beef or chicken, an action that drew protests from rival companies.

For example, Tyson Foods, the largest meat company in the United States, has complained to the Pentagon that some food companies have hired former military procurement officials to use their contacts to help win lucrative government contracts.

Timothy Hale, a spokesman at Fort Lee, said the army agency had not been notified that it was under investigation. He referred questions to the Justice Department.

In a statement, Agility Logistics said its service has been “timely, reliable and cost-effective.” The company’s position is that what investigators are looking at as improper payments were actually discounts received for paying its suppliers ahead of schedule, a widely accepted practice in the food industry.

In court papers, Agility Logistics cited an e-mail message from a military contracting officer last October telling the company that the practice of discounts was appropriate.

Agility Logistics attributed its high prices partly to the costs associated with storing, handling and transporting supplies to multiple locations in a war zone. The company said more than 30 of its employees had been killed and 200 wounded in the war zones.

Several food companies said they were cooperating with investigators.

ConAgra Foods said it first received a request for information from the Pentagon in January.

“ConAgra Foods has been assured by the Department of Defense, which is leading the investigation of Public Warehousing Co., that its role in this investigation is limited to that of a witness,” the company said in a statement. ConAgra has provided “relevant records and testimony to the government investigators.” ConAgra officials denied that they had charged too much for their products.

Officials of Sara Lee said they, too, had received a subpoena in January and had been assured that the company was not a target of the inquiry but a witness.

Kenneth Trantowski, a spokesman for Quantum Foods, said the company had received a subpoena during the summer from the federal prosecutors related to an investigation of “food industry practices as it relates to the military” and said the company was not a target of the investigation. Quantum Foods, based near Chicago, has supplied meat, chicken and meals to the military since 2000 and has been shipping to Iraq since 2002.

Tyson and some other major companies say they are being excluded from the lucrative war-zone market. Tyson sent a letter to the Defense Logistics Agency on April 3 outlining the company’s concerns about the way some food purchases by the military “appear to favor certain companies employing former military food service personnel,” Gary Mickelson, a company spokesman, said in an e-mail message.