Money For Nothing

Well, frumps, the war in Iraq may be “over” but the memory lingers on.  Today, AP ran a story about a company called Combat Support Associates that’s been picked up everywhere because it’s a perfect example of how taxpayers have been run over and plowed under by the Bush/Cheney Mega-military-industrial complex.  The story is about the hapless “sentry,” above who was found sleeping at his post guarding US troops at a base in Kuwait.  That sleeping sentry is only the tip of the proverbial iceberg, though, as you’ll see.

Combat Support Associates (CSA) is a privately held joint venture, based in Orange, CA, that was formed in 1998 for the specific purpose of bidding Department of Defense (DoD) support services contracts primarily for bases in Kuwait.  The companies involved in the creation of CSA were: AECOM Government Services of Fort Worth, Texas (60%); Research and Analysis Maintenance of El Paso, Texas (20%); and Space Mark Inc. of Alaska (a subsidiary of ALEUT Corporation).  All three of these players are interesting in their own right, more on that later.

In December, 1999, CSA bid a subcontract under the CSSC-Kuwait contract to provide support services for a US base, Camp Doha, in Kuwait.  Keep in mind that, at that point, CSA was a brand-new company, no track record, no accounting records, nothing besides the reputation of the venture partners. Nevertheless, CSA won the ten-year contract which was for a base year plus nine option years. 

According to SourceWatch.org, CSA’s specific contract was for support of Camp Doha “to include supply, maintenance of prepositioned equipment, force on force training, range control and camp security;  546 US and 787 Third Country National contract personnel. CSA was to maintain equipment for 7 battalions, plus a division slice. The ten year contract was originally worth as much as $500 million upon completion.”

 

Economy Flight

A few months after CSA won this lucrative defense contract, they selected the Cayman Islands, a British territory, to set up a Caribbean shell corporation, CSA, Ltd. To be its principle subcontractor, which effectively allowed CSA to avoid paying millions in US taxes, including payroll withholdings for its 2,000 employees – it’s almost like getting paid twice.  Until June, 2008, that was all perfectly legal and CSA spent eight years of their ten year contract enjoying their Caribbean tax haven. 

In 2008, then-President Bush signed the Heroes Earnings Assistance and Relief Tax Act, which provides tax relief for military families. Included in the legislation is a provision that would treat foreign subsidiaries of U.S. government contractors as American employers. That means they now have to pay the taxes that finance Social Security and Medicare programs.

Prior to enacting the law, the Senate Finance Committee estimated that thousands of companies have registered in the Caymans to dodge taxes. Ordinary Americans are hit twice by that practice: the first time to pay for government contracts and then later when they foot a larger share of the bill to pay for programs like Social Security, Medicare and Medicaid.  The Joint Committee on Taxation estimates that shutting the employment tax loophole would bring in about $846 million in revenue over 10 years.

During his 2008 campaign, Barack Obama said that setting up shell companies “turns the idea of patriotism on its head.”

When You’re Hot, You’re Hot

Until that happened, however, CSA was on a roll.  In March 2003, when U.S. forces invaded Iraq, demand for CSA’s maintenance and repair services increased dramatically as bases across Kuwait became hubs of activity for American troops.

CSA’s contract, originally valued at $547 million over 10 years, ballooned to $2.2 billion.  Thanks to a number of factors companies like CSA and scores of others have literally made out like bandits in the Mid-East.  Contractors are being paid big bucks to do unglamorous but necessary chores for the military that used to be done by much lower paid military personnel.

The original “Camp Doha” contract was eventually expanded to cover vehicle maintenance, computer repairs and security work at Camp Doha, Camp Arifjan and other Army sites in Kuwait.

Another factor that has helped CSA maximize their contract’s potential is that it is a “cost-plus” contract.  Under the terms of that contract, Combat Support Associates is reimbursed for the work it does and gets a fixed fee on top as profit.

As John McCain has pointed out in the past, “companies with cost-plus contracts have very little incentive to control costs,” which, in my opinion, is quite the understatement. It’s pretty much a blank check . . .plus profit.  On the other hand, the military pushes for these open-ended contracts during wartime because it can’t precisely define all the work that needs to be done.

Now, more than ever there’s a greater reliance on private sector companies, to illustrate that point, the Army’s contracting budget alone jumped from $46 billion in 2002 to $112 billion last year. Yet the number of government employees whose job it is to expose contracting fraud and corrupt officials has stayed about the same.

Bad Press Moments

CSA has kept a pretty low profile except for a few “bad press moments” like the now infamous “sleeping sentry.”  In February of 2007, CSA received some unwanted attention when it was discovered that they had hired Andrew Moonen, a former Blackwater USA employee who was sent from Iraq just two months earlier for shooting and killing the Iraqi vice-president’s security guard on Christmas Eve, 2006.  Moonen worked for CSA in Kuwait from February to August of 2007 while the Department of Justice was supposedly investigating the holiday slaying.

I also found this (unsubstantiated) note from a former CSA employee on the “adminsecret” portion of Monster.com:

An anonymous user (former employee) said 5 months ago:

Leadership: 1  |   Culture: 1  |   Pay: 3  |   Stability : 2  |   Advancement : 2   =  1.8

This company is full of corruption especially from its Senior Management. They hire unqulaified foreign people to fill positions, paying them less. Then they turn around and bill the US govt for the cost of a US citizen filling the position. Sr Managers in the company regulary hire Filipino women in positions because of outside personal realtionships they begin with the women. Many of the men in the company who have wives at home in the US are living with Filipino miads they find out in the town even though it is against Kuwaiti laws. CSA is the lowest paying contracting job in the Middle East. The health insurance has to all be paid by you upfront then you get reimbursed. Employees regulary bill the dental company they use for dental work that was never performed by having Dr’s over there make false claims for them. Its either Cigna or Aetna out of Florida.

Advice for prospective applicants:
Don’t! Find another contractor.

 

So What Do We Do About It?

Finally, it looks like some sanity is about to return to the defense contracting biz.  An Army investigation of the the Kuwait contracting office, located at Camp Arifjan, revealed numerous problems, including inadequate staffing and oversight, high staff turnover, and poor record-keeping.

The US government then pumps billions of dollars through that broken pipeline to support combat operations in Iraq.  It comes as small surprise that there is only spotty accounting or accountability and indications of widespread corruption and misconduct.

From 2003 – 2007, this fiscal black hole operated pretty much without audit, according to interviews and records obtained by The Associated Press through the Freedom of Information Act.

According to a recent AP article by Richard Lardner, who has singlehandedly kept the heat on CSA since its inception:

“In late 2007, the military belatedly began paying attention. Numerous contract violations were found, several of them serious, leading to a flood of what contracting officials call corrective action requests. Last fall, the Army Criminal Investigation Command opened an inquiry to determine if Combat Support Associates overbilled the government.”

“In one case, Combat Support Associates signed a $48 million deal for a Kuwaiti company to provide food, lodging and transportation for employees, but did no detailed study to justify such a large expense. A memorandum supporting the buy included a price analysis three sentences long. The team called it a “major systemic weakness,” the report said.”

“In the past two years, Combat Support Associates has been slapped with dozens of corrective action requests, which are warnings from the government to improve performance. Three of those have been Level III requests, which are issued only in cases of serious noncompliance with the terms of a contract.”

“One of the Level III warnings was issued the company’s top managers for failing to control CSA Ltd.’s business practices. Prior responses to fix the problems have been inadequate, it added.”

 

Finally . . .

Now, though, Army criminal investigators are checking into whether Combat Support Associates has overcharged the government. Federal agents searched the company’s offices in Kuwait in August. The company (not surprisingly) said it is cooperating in the case. 

Gary Lewi, a spokesman for Combat Support Associates, said the company provided the agents with documents. He declined to provide details because the inquiry is ongoing.  It’s not clear how much the company may have overcharged the government or for how long. The Army Criminal Investigation Command is leading the probe.

CSA’s Lewi released this official statement on the investigation:

“CSA has acted in accordance with its contract and no allegations have been conveyed by investigators.”

Over the past few months, new leadership has been installed in the Kuwait office and more contracting officers have been assigned there. The Army also transferred active contracts worth $1 million or more to Sustainment Command where there’s a deeper pool of acquisition personnel with experience handling complex acquisitions.

The largest of the dozen contracts now being managed by Sustainment Command is held by Combat Support Associates. 

And . . .

Believe it or not, according to CSA’s website, their ten-year contract, which was supposed to finish in September, 2009, has been extended for six months until March, 2010.

Should be interesting to see how this one unwinds.

Technorati Tags: Combat Support Associates, CSA, CSA, Ltd., Kuwait, Camp Doha, cost-plus contracts, Army Criminal Investigation Command, contract fraud, tax haven, Cayman shell corporation, Heroes Earnings Assistance and Relief Tax Act 

Tagged as: Army Criminal Investigation Command, Camp Doha, Cayman shell corporation, Combat Support Associates, contract fraud, cost-plus contracts, CSA, Heroes Earnings Assistance and Relief Tax Act, Kuwait, Ltd., tax haven