One day, not so long ago, the US State Department handpicked Texas-based DynCorp for an $800-million contract to train over 100,000 Iraqi police
officers, a top-priority project of the Bush administration’s effort to stabilize the war-torn country and strengthen the fragile civilian government
there (as part of a larger $1.2 billion contract). But State Department wanted a contractor with strong ties in Iraq, so DynCorp obligingly teamed up in 2004 with a company known as Corporate Bank Financial Service, a Washington-based business better known as The Sandi Group.
It seemed to have the makings of a winning partnership. DynCorp
offered a track record for building police forces in Haiti, Bosnia and other trouble spots around the Globe for the State Department since the early 1990s, so it easily won the contract with little competition and supplied 700 or so trainers largely recruited from police departments in the United States and other coalition allies.
The Sandi Group, run by Rubar Sandi, an Iraqi who immigrated to the United States in the late 1970s, would perform the logistics, provide security, hire interpreters, and perform other services as required. The 54-year-old Sandi, a member of a
prominent Kurdish family, had the well-established political and social connections in Iraq. Those connections and his entrepreneurial know-how served Sandi very well, not only in Iraq, but at the State Department where he had been an influential advisor to the "Future of Iraq
Project," a pre-war planning effort,
After the toppling of Saddam Hussein’s regime in 2003, Sandi immediately opened shop in Iraq where he took control of major Baghdad hotels, a newspaper, and several banks. The one-time Kurdish resistance fighter also recruited an armed private security force with a payroll of 7,500, laid plans for establishing an Iraqi airline, and positioned himself for US-administered contracts in the reconstruction effort. Those contracts included dozens
upon dozens with DynCorp for construction projects, leases on posh hotels, security, logistics and other support services as needed.
“Could You Determine Any Value Added?”
All the while, The Sandi Group kept a low profile in Washington.
Then on February 7, its
sister company, Corporate Bank, was singled out during a congressional hearing for its controversial handling of a multimillion-dollar DynCorp contract to build an Iraqi police training camp in Baghdad near parade grounds of Adnan Palace, a once luxurious domed castle used by Saddam Hussein’s family.
Two weeks after receiving the $55.1-million contract from
DynCorp on Aug.15, 2004, Sandi’s Corporate Bank hired an Italian company, Cogim SpA, for $47.1 million to do all the
work. The task included providing 1,048 living trailers and building an Olympic-sized swimming pool. On paper, the deal had the look of an effortless $8-million profit for Sandi at the US taxpayers expense -- just for being the middleman and flipping the contract to Cogim.
A skeptical Rep. Stephen Lynch, D-Mass., laid out the arrangement before the crowded House congressional hearing teeming with scribbling reporters and TV cameras.
“The problem is the tiering of all these contracts. You have a general contractor, a subcontractor and a sub-subcontractor and a sub-sub-sub contractor,” Lynch noted to witness Stuart Bowen, the leading investigator of the US-funded reconstruction efforts in
Iraq.
Chances are there could be plenty of sub-sub-sub-subs in the final mix, but Lynch was especially keen on Corporate Bank’s $8 million handling fee.
His eyes widened with the puzzled look of a straight man setting up the punch line: “I just want to understand, is that
right?”
Bowen didn’t crack a smile. Sitting with hands calmly folded on the witness desk during his testimony before the House Government Oversight and Reform Committee, the
Special Inspector General for Iraq Reconstruction cascaded into what is now a familiar, but still opaque, explanation for deciphering the contracting chaos in
Iraq -- a mess that so far has left government auditors scratching their heads
over $10 billion in taxpayer money seemingly misplaced through sloppy bookkeeping, job delays, bloated expenses and work that was paid for, but never performed.
“Quality assurance,” Bowen said, “expects that the contractor execute a quality control program over his subcontractors and the lack of visibility by the operational overseer of the government doing the program results in the loss of visibility and cost control.”
(Translation: State Department contracting officers
handed off the cost control and job performance issues to DynCorp. The government didn’t have a clue to what was going on except for what it learned from DynCorp.)
Lynch reframed his question about Sandi's $8 million
carrying charge for Adnan: “Could you determine any value added?”
“No we didn’t,” Bowen said, but stopped short of singling out a possible bad guy.
Someone using the screen name instantly uploaded the C-SPAN video of
Bowen's testimony on to youtube.com, (and credited to
"Nancy Pelosi"), but Lynch could have gone
straight to the source for his answers by catching a short cab ride to The Sandi Group’s elegant office just 1 ½ miles away on Connecticut Avenue in the fashionable DuPont Circle neighborhood of Washington, DC.
After passing a wall-sized collage of folded dollar bills portraying an American flag near the front door, Lynch may have found a digital trail littered with dozens of contracts and agreements of Sandi’s work
with Dyncorp for apparently even larger paper profits.
‘Corporate Stuff’....Cash Margins and Profit
According to Adnan Palace agreements leaked out on the Internet more than a year ago, Sandi indeed planned to make $8 million on the Adnan Palace while giving the work to Cogim. That was the charge to DynCorp
-- an 11 percent for general administration costs, known as G&A, and 6 percent profit for an exact total of just over $8 million.
The contracts between DynCorp and Corporate Bank and Corporate Bank and Cogim read almost exactly the same. An administrative assistant sitting at a computer could have easily employed a copy-and-paste approach and just replaced a few words with “Cogim.”
Tim Crawley, who left DynCorp as vice president of contracting last June to join Sandi as executive vice president and general manager, defends the standard G&A and profit included in the contract as an industry standard. The G&A,
he explained, reimburses the back office administration; it keeps the office lights on, pays for health insurance, payroll systems, legal advice, business development, “thought processes” and operational “guidance.”
“There’s a lot of confusion about this,” he said. “It pays for the corporate stuff.”
Meanwhile, the profit is, well, profit. And DynCorp
then presumably tacked on its own administrative handling
charges.
“Six percent is pretty low, especially in Iraq,” he said, before
curtly concluding his interview at The Sandi Group’s office. “There was a large cash outlay and it took 90 days from the first notice to proceed to the time of reimbursement.”
Crawley excused himself when it came to commenting on a dozen other draft contracts, represented by sources the actual ones.
These agreements reflect a business practice that Sandi may have repeated again and again when tasked with building almost 30 police camps and providing
an array of other services to DynCorp.
By all appearances, those agreements could have left Sandi with a hefty cash margin sometimes reaching 50 percent or more
in profit above the sum that DynCorp agreed to
pay.
Here’s how those agreements apparently worked: Sandi’s Corporate Bank would first sign task orders with DynCorp, include charges for profit and administration costs, and then pass them off to a handful of construction companies from Baghdad, Jordan, Turkey and Italy for much less money. The contracts read very much the same as those between DynCorp and Corporate Bank except for an opening paragraph. Sandi supplied the “guidance” while the subcontractor would “direct the project.”
So, according to the draft agreements, when DynCorp hired Sandi’s Corporate Bank in October 2004 to build a regional camp with 24 living trailers at Ad Diwaniyah, Corporate Bank billed $1,194,197. One month later, Corporate Bank then hired the Hozan General Construction Company of Baghdad for $605,000 to do the work. Similarly, DynCorp agreed to pay $833,680 for a 16-trailer camp at Al Kut. Corporate Bank then hired Hozan for $388,000. In Karbala, DynCorp agreed to pay $809,520. Corporate Bank turned to Hozan for $388,000.
In effect, one dollar of reconstruction money became $50 cents...with the final subs hiring subs to do the work.
It appears that the first contractor in line gets the lion's share of profit and benefit. If this tiny shaft of light into the world of reconstruction is typical then it would be American corporations, not Iraqis who are the major beneficiaries of America's largesse.
Sandi and DynCorp both chose not to comment on repeated inquiries about the amounts being charged for the camp
building -- nor did representatives comment on whether or not the companies viewed the charges as “fair and reasonable,” an industry standard in government contracting laid out in sometimes ambiguous federal procurement regulations.
Once DynCorp paid Corporate Bank for its services, it would then charge the State Department – with another 4 percent to 6 percent markup for handling and
management.
Sandbagging in Iraq
Louis Brown ran Sandi’s Iraq operation until autumn 2005
and is now vice president of special projects. He picked up
on the interview about Sandi's work in Iraq where Crawley left off.
Brown said Sandi’s extra financial padding was necessary because
Sandi's Corporate Bank hired subcontractors that regularly failed to perform as Sandi had hoped.
“The government wanted DynCorp to build product as if it were in the United States,”
Brown said. “We couldn’t just go out to Home Depot.”
But there is no lack of sand in Iraq. And DynCorp requested Sandi to provide filled burlap sandbags or a “reasonable substitute” to fortify most of its police camps, including a 17-trailer installation in the town of Najaf, a hotbed of Shiite insurgency and bombings and the site of one of Islam's holiest shrines. Sandi determined that 24,990 sandbags were needed at $1.89 a piece, according to a December 23, 2004 agreement.
DynCorp agreed to pay $67,397 for the work. The tab included, among other things, a $10,050 charge for an onsite project manager to guide the sandbagging with the proviso: “The contractor shall have a superintendent on site at all times during the course of work.”
Sandi then hired an Iraqi company, Al-Kahirat, to do the work. The $23,000 contract with Al-Kahirat reads very much the same as the one DynCorp agreed to, including the requirement that Al-Kahirat “shall have a superintendent on site at all times during the course of work.”
Why did Sandi plan on paying itself more than $44,000 while hiring Al-Kahirat for $23,000 to perform the actual work? To cover unforeseen contingencies, Brown explains.
The sandbags turned out to be useless at Najaf, he said. The job had to be
redone-- but that was after contracts had been written.
Sandi itemized the exact same sandbagging fee at other camps it built for DynCorp.
"Throwing Darts and Drinking Beer"
The threat of roadside bombs and insurgency threats also frequently delayed projects, said Brown, a towering man who
says he once worked as a security adviser to high-level government officials and celebrities such as James Brown, Janet Jackson, Elizabeth Taylor and Michael Jackson before joining Sandi in Iraq.
He also says he once was a guard for a US vice president,
but won't say which one.
Jobs scheduled to be completed in 45 days could drag out to 155 days, Brown recalls, and Sandi provided security details at its own expense to travel with subcontractors and convoys carrying materials to work sites located at US military camps. One American security supervisor for low-paid Iraqi guards could cost $450 to $700 a run, Brown said.
For all of its Iraq contracts, which include a variety of work ranging from perimeter security of hotels
housing DynCorp operated by Sandi to the guarding of U.S. government agencies and contractors to intelligence gathering, Sandi’s security force, which has numbered as many as 7,500, has paid a heavy price. The company has suffered 186 casualties, including one American. The US Department of Labor recently fined Sandi $40,000 for not reporting the deaths as part of a US-required insurance program known as the Defense Base Act, Brown acknowledged.
The most savage deaths occurred in December 2004 when eight Iraqi security guards were executed after being kidnapped west of Baghdad. The event cast a chill of fear among Sandi’s subcontractors.
Any news of a bomb or mortar attack around Baghdad put the subcontractors on edge. Workers with the Italian firm, Cogim, refused to leave their villa,
recalls Donald Vance, a Navy veteran from Chicago who worked as a Sandi security supervisor in 2004 and 2005. “They would tell us we couldn’t make them go out even for a 30-minute ride,” Vance said. “I would be at meetings and just sit back and laugh. They were afraid of being kidnapped.”
Sandi provided subcontractors with the best body armor and factory armored GMC sports utility vehicles available. Vance assured them they would be safe, but the Cogim team frequently wouldn’t budge. “They had everything they needed in their villa,” Vance claimed. “They liked staying there while throwing darts and drinking beer.”
Even worse, at some of the project sites, supervisors were nowhere to be found and workers for the subcontractors preferred spending time enjoying the stores, food courts, recreational facilities and other amenities at the military camps.
“I remember going to Camp Victory and there was no equipment or staff on the project site,” Vance said. “We would take a Sandi supervisor out and he would blow a gasket. People weren’t working. It was 130 degree heat. Everyone preferred jumping into the pool.”
Cogim declined to comment on its work for Corporate Bank in Iraq.
In 2005 several top executives with Cogim were investigated and charged for bribes paid to UN officials on deals to provide prefabricated building to peacekeeping missions unrelated to Iraq. Cogim’s name no longer appears on the U.N. vendors’ list as an approved supplier. The relationship beween DynCorp, Corporate Bank and Cogim is also featured in
SIGIR report06_029.pdf
‘All Bad’
Brian Evancho, a 14-year Marine veteran from western New York who worked in aviation quality assurance, had a job as a Sandi project supervisor in Iraq for seven months after working other Iraq projects with the US Army Corps of Engineers. A few of Sandi’s camps worked out well. Others had serious problems, Evancho recalled during an interview last year before returning to Iraq for another contractor.
Iraqi police camps in Bakubah, Victory, Ramadi, Fallujah, and Najaf “were all bad,” he said. “Sandi was overcharging and didn’t perform. I’d say half of the reason for the nonperformance by the sub-contractors was because they didn’t get paid so they didn’t show up for work.”
One project at Camp Diamond Back in the northern Iraq town of Mosul apparently ran through three subcontractors before it was finished. DynCorp apparently agreed to pay $2,157,823 for a camp that included 52 living containers and support structures along with 85,000 sandbags itemized at $160,650.
“Mosul should have cost $600,000 to build,” Evancho said, suggesting that such a sum would include a “reasonable profit” of 28 percent.
The camp took a year to finish and when a State Department representative looked the place over, “he was laughing.” Evancho said that the air conditioning didn’t work, the furniture was “corrugated garbage” from China, and the mattresses were made of foam so thin that they “wouldn’t last two weeks” if an adult slept on them.
As far as the Adnan Palace police camp is concerned, the State Department dropped the project after spending $43.8 million for the uncompleted camp. But while that project was planned right under the nose of government contract officers, the dozens of camps DynCorp built with Sandi in Iraq didn’t come close to that degree of government “visibility” or scrutiny.
Of the seven major regional training camps costing a total of $17.9 million, none were visited by the State Department. The government contracting officer who authorized the spending on the projects told Bowen’s investigators that he “never visited the sites” because of security concerns and that he relied on reports from others regarding the status of the camps.
The inspector's general investigators intend to visit the other police camps sometime in the future, the
report says. Perhaps the visibility will be better.
Meanwhile, DynCorp and Sandi parted ways last August. The two will no longer be pursuing further construction projects together, said DynCorp’s spokesman, Greg Lagana. “The company reviewed its strategic partnerships and it was determined the company could perform the work on its own.” |
