Our headline for today comes from the last words uttered by Astronaut Dave Bowman’s in the movie, 2001: A Space Odyssey—as reinterpreted for this occasion. What causes this particular bout of Internet hyperbole? Well, it’s like this, folks. We have two more stories about fraud in the public procurement process to talk about today.
We recently wrote about four separate fraud/corruption enforcement actions undertaken by the Department of Justice, all of which were reported within one two-week span of time. We opined, “With the constant stream of news stories like these, it’s no wonder government auditors and law enforcement officials think so many people (and contractors) are crooks.”
And this is not the first time we’ve muttered (or yelled, if you will) similar sentiments. A site wordsearch on “fraud” yields more than a score of articles on fraud, corruption, bribery, and outright theft within the public procurement process. In this article, published in February, 2010, we asked whether such wrongdoing was simply “business as usual” in the government contracting environment. In that article, we noted, “… these three stories, coming essentially on top of one another, and put in context of other articles we’ve posted recently … should remind readers that there is enough wrongdoing to justify all the many auditors and law enforcement officials we encounter in this highly regulated industry.”
What does today’s menu of wrongdoing contain? What’s the corruption du jour, if you will? As a famous poet once wrote:
Let us go and make our visit.
The first item on our menu is the case of Richard Harrington, age 38, of Jacksonville, North Carolina—a former Major in the United States Marine Corps., and former Contracting Officer’s Representative It is said that there is no such thing as a former Marine, but we bet that the Corps. wouldn’t mind it if Major Harrington stopped calling himself one. Here’s the link to his tawdry tale of accepting bribes from contractors while stationed in Iraq. According to the article, “Harrington requested and received Rolex watches, a Persian rug and $35,000 in cash from contractors while working on a project for new gym equipment.” The article reported—
Harrington was stationed at Camp Fallujah, Iraq … serving as a contracting officer representative. Tasked with inspecting and accepting work from contractors and monitoring their compliance, he wrongfully solicited and accepted gifts from a contractor while working on a $2.2 million gym equipment contract with Al Jazaer Group….
Before an official trip to Dubai, United Arab Emirates, in November 2005 to conduct market research, Harrington told a corporate representative for Al Jazaer that he wanted two Rolex watches. The company would deliver the watches, valued at more than $5,000 apiece, to Harrington while he was in Dubai.
During the trip, Harrington was also unofficially accompanied by a representative from AVA International Corporation who paid for most of his expenses, including transportation and hotel, and the gift of a Persian rug. In spite of this, Harrington submitted expense reports for more than $10,000 following the trip, and was reimbursed in full by the U.S. Government.
Harrington would later receive additional watches from Al Jazaer and other contractors. Shortly after Al Jazaer received its final payment on the contract, Harrington received the $35,000 he had requested from the company.
When he returned to Jacksonville in Dec. 2005, Harrington took the watches with him and shipped the $35,000 home in a trunk. He declared neither on customs forms. He would use the money to buy a car, pay off a car loan and purchase another Rolex watch.
… Al Jazaer enlisted Harrington’s help after his return home in a dispute over more than 30 shipping containers, valued at $90,000, which were in the custody of the Marine Corps. Harrington contacted officials in Iraq and assisted the company in getting the containers back.
Well, that’s a nice way to profit from one’s military career, is it not? What else might we have to report on?
Our second story concerns, among other things, a counterfeit “Jesus nut”. What’s a Jesus nut? That’s the part of a helicopter that secures the main rotor to the rest of the aircraft. If it doesn’t work right, the rotor stops turning (or separates from the helicopter) and the helicopter experiences an extreme challenge in maintaining lift. As this Wikipedia article notes, “The term may have come from the idea that, if the Jesus pin were to fail in flight, the helicopter would detach from the rotors and the only thing left for the crew to do would be to pray to Jesus.” Suffice to say that counterfeit Jesus nuts that don’t meet MILSPEC requirements are a very big deal to those folks who have to ride helos for a living.
So what (allegedly) happened? Let’s look at this story, published by the Register-Guard of Coos Bay, Oregon. The story reports on a local military contractor—Kustom Products, Inc.—that (allegedly) “routinely and systematically engaged in a scheme to defraud the United States by providing nonconforming substitute parts and supplies to the (Defense Department) … substantially profiting from this practice.” The story reported—
Two generations of a longtime family business here are under federal investigation for allegedly selling thousands of defective, knock-off parts to the U.S. military — including a critical helicopter part Army mechanics call “the Jesus Nut” because it secures the main rotor to the aircraft.
Kustom Products Inc. and its predecessor companies landed more than $31 million in Defense Department contracts between 2005 and 2009… Company president Harold Ray Bettencourt, his ex-wife and the couple’s four adult sons paid themselves nearly $3.7 million between June 2007 and December 2009 from mark-ups of 22 percent to 3,745 percent on their military contracts… A Defense Department investigation allegedly turned up their flawed, look-alike parts as far away as Kuwait.
Search and seizure warrants unsealed late last month by U.S. District Magistrate Judge Thomas Coffin in Eugene suggest that the three oldest Bettencourt brothers — Bo, 29, Nick, 28, and Pete, 23 — used contract proceeds to build new $400,000 to $500,000 homes on the same street in a North Bend subdivision overlooking the Pacific Ocean.
Those homes have been seized for forfeiture to the federal government, along with the business complex and a $1.2 million home on a Myrtle Creek ranch still jointly owned by Harold and Kathy Sue Bettencourt despite their 2009 divorce. Dozens of bank accounts also are under seizure, along with late-model boats and high-end vehicles including a Lexus, a Mercedes-Benz and a Hummer.
Property is subject to forfeiture under federal law if it is used in or bought with proceeds of a criminal enterprise. …
‘Fraud involving space vehicle or aircraft parts in interstate commerce’ is among the possible charges... Penalties for that crime range up to 15 years in prison and $500,000 in fines if a fraudulent part was installed on an aircraft.
Investigators are also probing allegations that KPI provided ‘false records and documents to disguise their scheme’ when the Defense Department tried to trace the ‘nonconforming parts’… [They] alleged that owners and employees of KPI and a sister company, Southern Oregon Sterling Parts and Service Inc., ‘routinely and systematically engaged in a scheme to defraud the United States by providing nonconforming substitute parts and supplies to the (Defense Department) … substantially profiting from this practice.’ And Bo Bettencourt told investigators that KPI’s survival depended on providing knock-off parts ‘like everyone else’ in the defense contracting business …
[Allegedly] KPI and Sterling won contracts using a Pentagon computer program known as PACE, which automatically awards contracts of $25,000 or less based solely on the lowest bid submitted. The Bettencourts were low-balling their competition … then sending photos of the authentic parts to a Texas company they hired to ‘reverse engineer’ replicas. They got caught when military mechanics found some of the parts defective — including a locking nut that secures the main rotor to the mast of Kiowa helicopters… Mechanics with the Kentucky Army National Guard discovered defects in eight of the nuts as they attempted to install them on helicopters in August 2008… The flaws prompted them to send out an Army-wide warning… ‘This part is manufactured wrong. It has a flat surface where it goes into the latch instead of a radius,’ the mechanics reported, adding: ‘Keep these nuts from being installed on aircraft, safety of flight issue.’ … The affidavit does not allege — and The Register-Guard could find no evidence — that the defective parts caused a helicopter crash.
When Defense Department investigators traced the defective nuts to KPI and Sterling, the Coos Bay firms acknowledged that they were not the parts required under the contract ... But they blamed the discrepancy on the nuts being placed in the wrong bin, rather than admitting they had ordered them from an unauthorized manufacturer. That manufacturer, Coloc Manufacturing of Canton, Texas, later told investigators that KPI never revealed that the parts ‘were to be used on a military helicopter’s main rotor assembly.’ …
Despite the Defense Department probe, KPI [allegedly] continued to order … ‘nonconforming’ parts from Coloc. The … company simply asked the Texas firm to re-engineer the knockoff parts to more closely resemble the authorized parts specified in the contracts…
When the Defense Department began scrutinizing other KPI and Sterling military contracts, it found 83 different product deficiency reports against the Coos Bay company ... The defective parts reportedly included generators, alternators, filters and safety relief valves for light armored vehicles, medium tactical vehicles and Humvees. [According to the investigators] ‘In most cases, the parts were ‘critical application’ items essential to operating personnel.’
That grinding sound you hear right now is not a failing Jesus nut; it is the sound of our teeth. As always, defendants are innocent until proven guilty in a court of law. (We heard that on a recent Law & Order episode.) However, if these allegations are proven true, then we wish this family a long visit to a Federal prison.
Perhaps they should have thought before putting lives in jeopardy. Perhaps they should have asked themselves this question. It might have helped.
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