DoD’s $7B household goods contract takes an even stranger turn

The DoD Reporter’s Notebook is a weekly summary of personnel, acquisition, technology and management stories that may have fallen below your radar during the past week, but are nonetheless important. It’s compiled and published each Monday by Federal News Network DoD reporters Jared Serbu and Scott Maucione.

 

TRANSCOM offers explanation for reversal on corrective action, but it’s difficult to square with publicly-available evidence

U.S. Transportation Command has provided new details to support the highly-unusual decision it made last week when it re-awarded its $7.2 billion Global Household Goods contract (GHC) to the same vendor — just two weeks after had it pledged to take corrective action on the contested procurement.

In short, U.S. Transportation Command’s explanation is that the problem that first led it to pull the contract back — which also prompted the Government Accountability Office to dismiss two pending bid protests — was just a misunderstanding, caused by a clerical error on the part of the winning bidder, American Roll-On Roll-Off Carrier Group (ARC).

But TRANSCOM’s account is extremely difficult to reconcile against publicly-available documents.

In a statement, the command said its initial reason for pulling the contract back was that it looked as though ARC had failed to disclose a 2016 price fixing conviction on the part of its parent company for which it paid a nearly $100 million fine — an issue first raised in one of the GAO protests.

But according to TRANSCOM, that’s only because ARC officials mistakenly selected the wrong parent company from a dropdown menu when they registered their firm in the government’s System for Award Management (SAM). Instead of choosing Wallenius Wilhelmsen ASA (WWASA), ARC’s actual parent company, they selected Wallenius Wilhelmsen Logistics AS (WWLAS) — the company convicted in 2016.

Defense officials characterized the latter firm as merely “a separate company with a similar name.”

“After extensive independent review, TRANSCOM determined that the corporate misconduct was not affiliated with ARC nor its parent company,” officials said in the statement. “It appeared to the protester that ARC failed to meet [Federal Acquisition Regulation] disclosure requirements when, in actuality, the true parent company was misidentified. Minor errors in SAM are not grounds for disqualification. Since neither ARC, nor its parent company WWASA have a record of misconduct, TRANSCOM substantiated its original award to ARC because its proposal provided the best service for the best value for service members, DoD civilians and their families.”

But that explanation doesn’t comport with other publicly-available evidence about Wallenius Wilhelmsen’s actual corporate structure.

The similarity between the two companies’ names isn’t just an odd coincidence: WWASA — ARC’s Norwegian-Swedish parent company — is also the parent to WWLAS, the company that was convicted. In 2016, WWASA was a 50% owner in each of the companies; following a 2017 merger with the other partial shareholder, both business units are now wholly-owned subsidiaries of WWASA, according to a Federal News Network review of the firm’s annual reports and other public documents.

For the 2016 case, WWLAS paid a $98 million fine after reaching a plea agreement with the Justice Department. The company admitted that it conspired with other roll-on roll-off shipping companies in an antitrust conspiracy to rig bids and fix prices on various ocean shipping routes to and from the U.S.

In a Baltimore courtroom, on Sept. 12, 2016, the official who plead guilty on WWLAS’s behalf was Hakan Larson.

Today, Larson is the chairman of the board of WWASA, the parent company for both WWLAS and ARC.

WWASA also disclosed the WWLAS conviction to its investors at the time, and assured them it had already planned for the payment of fines that had yet to be determined on its previous year’s balance sheets.

Those documents show that WWASA had set aside $200 million to handle settlements with U.S. and European prosecutors who had antitrust cases pending against WWLAS.

A portion of WWASA’s quarterly report for the third quarter of 2015

Neither TRANSCOM nor ARC answered questions from Federal News Network about how they could have concluded the two Wallenius Wilhelmsen companies are meaningfully distinct from one another for the purposes of federal disclosure rules, or how they could credibly claim that WWASA “does not have a record of misconduct.”

“As part of its corrective action process related to the GHC bid, TRANSCOM conducted a thorough independent investigation of the facts,” Charles Diorio, an ARC spokesman said in an email. “In its July 1 release, TRANSCOM detailed the findings of that investigation. I refer you to that release and our previous statements.”

In addition to the U.S. criminal case, WWLAS — now called “Wallenius Wilhelmsen Ocean,” following the 2017 reorganization — is awaiting sentencing in an Australian federal court after having pled guilty last month to “cartel” behavior involving transportation between countries in the Western Pacific. Authorities in Japan and South Africa have also investigated and fined the company in their own anti-trust cases.

And in 2018, WWLAS paid a €207 million settlement to the European Commission after investigators accused that firm and several others of anti-competitive behavior. In that case, the commission had no trouble assigning liability to several different Wallenius Wilhelmsen operating units — and their ultimate parent — despite the corporation’s complex organizational structure, partly because WWASA admitted it was liable for the actions of its subsidiaries.

A statement the company issued at the time also left little ambiguity about whether ARC, WWLAS and WWASA are connected with one another.

“The company brings together the shipping and logistic businesses of EUKOR Car Carriers, WWLAS and American RoRo Carriers,” the firm said in a legally-required disclosure.

Wallenius Wilhelmsen’s 2019 annual report is also fairly unambiguous — as are previous years’ editions.

“The scope of this report includes vessels, ocean services and land based services owned or controlled by the Wallenius Wilhelmsen group, which includes Wallenius Wilhelmsen Ocean [WWL’s successor company after the 2017 reorganization], Wallenius Wilhelmsen Solutions, EUKOR and American Roll-on Roll-off Carrier (ARC),” the report reads in part.

TRANSCOM hopes to use the GHC contract to transform the military moving system, transitioning it away from move-by-move agreements between DoD and individual moving companies to a single managed service provider that can establish long-term relationships with those firms, and hold poor-performing ones accountable.

Officials have said they believe the new contract structure will increase competition in the moving industry, but it remains unclear how heavily source selection authorities weighted that objective, and how strongly they accounted for ARC’s parent companies’ history of convictions for anticompetitive behavior in that calculus.

All three of the bidders in the GHC contract have had varying degrees of prior legal difficulties.

One bidder, Homesafe Alliance, is a joint venture led by Kellogg Brown & Root, a firm with an extensive history of civil and criminal judgements in which the government has been the plaintiff. And in 2012, a sister company of Crowley Technical Services — the parent company of another bidder, Connected Global Solutions, paid a $17 million fine for its part in a price fixing scheme involving freight shipments to Puerto Rico.

But as to ARC, legal and contracting experts said the primary issues are whether the company had properly disclosed its history, and whether TRANSCOM’s contracting officials had done sufficient due diligence to determine that ARC was “presently responsible” before they decided to award  a more than $7 billion multi-year contract to the company.

Considering that TRANSCOM’s publicly-expressed understanding of the company’s structure appears to be at odds with numerous publicly-available documents, there is reason to question how rigorous that examination has been. —JS


 

Making flying cars less far-fetched

The Air Force’s innovation hub, AFWERX, is hosting its first virtual TeamUp event in the middle of the month. The Air Force is hoping to award $10 million in contracts over 90 days. Some of those awards will go toward Air Force Acquisition, Technology and Logistics chief Will Roper’s flying car pet project called Agility Prime.

“Leveraging unique testing resources and revenue generating government use cases for distributed logistics and disaster response, the government plans to mitigate current commercial market and regulatory risks,” the project’s website states. “Agility Prime also aims to bring together industry, investor, and government communities to establish safety and security standards while accelerating commercialization of this revolutionary technology.”

The Air Force hopes to have operational flying cars by 2023.

Other parts of the TeamUp event will focus on hearing what industry can offer the Air Force in any category.

“The Small Business Technology Transfer (STTR) Open Topic is yet another way the Air Force is determined to be the preferred partner for small business, providing non-dilutive seed funding to them and their research partners, including universities and nonprofit institutions,” said Maj. Jared Evans, AFWERX STTR Open Topic program manager and technology transfer lead at the Air Force Office of Scientific Research. “The STTR program is a critical part of our broader investment in our small business and research communities.” — SM


Goldfein: Strike while the iron’s hot

Outgoing Air Force Chief of Staff Gen. David Goldfein said now is the time to strike for digital engineering and data architecture. After years of budget growth, the coronavirus pandemic, plus more fiscal responsibility is most likely going to leave the Defense Department with a flat or declining budget in coming years.

“You got to do it. You’ve got to invest in it,” Goldfein said during a Brookings Institution event last week. “Google didn’t become an AI company before they got their digital architecture right. They didn’t become an AI company until they first got common access to data.”

Goldfein said now is the time to get the foundational set right.

“Everything that follows will connect to open mission systems,” Goldfien said. “I need resilient pathways to communicate and to change the cost curve. Right now it is so much more expensive to defend than to attack. We need to flip that curve. Industry is ahead of us and they can help us get where we need to go. Now is the time to do it, especially with tough budgets ahead.” — SM


Changes in affirmative action regulation

The Trump administration is permanently exempting TRICARE providers from abiding by the Labor Department’s Office of Federal Compliance Programs’ nondiscrimination policies for employees. The conclusion to the years-long battle involving the OFFCP’s authority over TRICARE contractors means less regulation for health facilities treating military dependents, retirees and others, but possible risks for employees working for them.

“OFCCP has determined that special circumstances in the national interest justify granting the exemption as it would improve uniformed service members’ and veterans’ access to medical care, more efficiently allocate OFCCP’s limited resources for enforcement activities, and provide greater uniformity, certainty, and notice for health care providers participating in TRICARE,” a posting in the Federal Register states.

OFCCP ensures federal contractors are abiding by certain regulations, in this case ones pertaining to discrimination in the workplace.

Proponents of the rule state that a section in the 2012 National Defense Authorization Act exempts TRICARE providers from OFCCP’s oversight. OFCCP agreed with that opinion in the past, saying that it does not have authority over TRICARE providers.

The law states DoD should maintain adequate networks of providers and in doing so “a TRICARE managed care support contract that includes the requirement to establish, manage, or maintain a network of providers may not be considered to be a contract for the performance of health care services or supplies on the basis of such requirement.”

Opponents of the rule say it is a blow to civil rights.

“The rule proposes categorically carving out TRICARE providers from OFCCP’s civil rights enforcement jurisdiction and represents a retrenchment that would strip critical civil rights from employees without adequate justification,” a letter from the National Women’s Law Center says. “OFCCP proactively identifies and addresses discrimination by bringing systemic investigations,
conducting compliance reviews of selected contractors, and providing guidance to contractors on affirmatively promoting equal opportunity in the workplace and complying with the laws under its
jurisdiction.”

OFCCP will still regulate providers that hold other federal contracts and TRICARE contracts at the same time. There was previously a five-year moratorium on OFCCP enforcement of TRICARE providers that was going to expire on 2021. — SM


A ‘bank’ for maternity uniforms

The House version of the NDAA may help pregnant service members get uniforms for free.

A provision inserted by Rep. Deb Haaland (D-N.M.) creates a “rent the camo” pilot program that would let service members who are expecting or have recently delivered a child borrow maternity uniforms instead of having to buy them out-of-pocket.

“They’re only pregnant for nine months, and we just felt this was a logical program that would support our active duty service women , so they can have successful careers in our armed forces,” Haaland told Federal News Network. “We have talked about the fact that there are not enough women in the higher ranks many times. This is one way that we can support our women and help them to be successful.”

The legislation authorizes $10 million for a bank of different sized maternity clothes. The bank would be under the jurisdiction of the Defense Logistics Agency.

The uniforms will also be free of permethrin, a chemical used to treat scabies and lice. — SM

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