Army funnels over $250 million to bogus Alaska native firm with no experience

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Is the U.S. Army getting its money's worth when using unqualified and inexperienced contractors?

A tiny and inexperienced Delaware company has been awarded hundreds of millions of dollars of lucrative contracts by the U.S. Army without any competitive bidding, and for which it has no experience.

A Washington Post investigation found that the small firm, United Solutions and Services, known as US2, has expertly exploited federal laws designed to help impoverished native Alaskans, although nearly all of its revenues, profits and employee compensation has gone directly to non-native Alaskans. In fact, the firm is not located in Alaska, and employs not a single native Alaskan.

The company benefited from a loose association an Alaska Native Corporation (ANC), a special type of entity created by act of Congress in 1971 to help improve the lives of impoverished native Alaskans. Over $29 billion in work has been awarded over the last ten years to companies that have ANC status, many of which through a legal association with an Alaska shell company. A key and extremely valuable feature of ANC status is that companies can receive federal contracts of any size, without any competitive bidding.

In the three-year period between 2005 and 2008, US2 had a total of $33,000 in revenues- largely from janitorial and other work. It had only three employees, and its president, Stephen Hadley, worked from his living room in his Delaware home. Despite its lack of revenues, assets, employees, experience or anything else of apparent value, US2 had one asset of monumental value: its 51% ownership by an ANC called Cape Fox, allowing it to become a major defense contractor overnight.

Before founding US2, Hadley was a lineman and supervisor at Delmarva Power and Light. He told the Post, “When I got into the ‘federal world’ and realized that I had a chance to be entrepreneurial, do public service and help out the Alaskan natives, I fell immediately for the challenge. I am very proud of what we have accomplished. All it took was a good plan, lots of luck, perseverance, people willing to take a chance and God’s will to make it happen.”

Due to its part-ownership by Cape Fox, in 2008, without any competitive bidding, the Army discovered US2 and awarded three lucrative contracts in rapid succession. First was a $7 million contract in April 2008 for “professional, scientific and technical services.” Then in July, it received a $22 million contract to build a 15,000 square-foot high-tech recruiting center in Philadelphia.

Shortly thereafter, the Army awarded a five-year contract to US2 worth as much as $250 million to create a program to handle sexual assault and harassment training, another area in which it had no experience. With full knowledge of the Army, US2 simply subcontracted the work out to other firms to meet the requirements of the contract, as it done on the previous contracts

In 2009, the Army paid US2 a total of $61.7 million under the contract. Of that, nearly all the monies went Hadley and a handful of subcontractors, including Summit Marketing Group, General Dynamics Information Technology, nonprofit government contractor LMI and public relations outfit O’Keefe and Co.  The amount earned by and paid to native Alaskan company Cape Fox amounted to $641,000- about 1% of the total revenues.

Besides the apparent abuse of the ANC laws to funnel lucrative government contracts to firms that provide little or no benefit to impoverished Alaskans, the lack of competitive bidding almost guarantees that taxpayers are also being overcharged on billions of dollars of such contracts. The competitive bidding process affords protection that goods or services are being secured at a reasonable price and help avoid rampant fraud that is so prevalent in government contracting.

The Army claims that it followed proper procedures in its dealings with US2, but said that it would refer the matter to its inspector general for further review.

The Washington Post

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Comment (1)
  1. James D. says:

    Hard to imagine. What’s next?

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