A Dept. of Defense IG report dated June 27 and subsequent news articles have raised serious questions about Army and Marine Corps contracts with Force Protection Inc. and Armor Holdings Inc. totaling $2.2 billion. The contracts were intended to supply troops in Iraq with new mine-resistant, armored vehicles and armor kits for older vehicles already in use. However, the IG report details repeated delays in production and suspect procurement practices, possibly endangering combat troops.
The contracts with Force Protection Inc. were awarded on a non-competitive, sole-source basis despite disagreement with some Marine officials. Furthermore, WaPo reports:
The contracts continued even though Force Protection "did not perform as a responsible contractor and repeatedly failed to meet contractual delivery schedules for getting vehicles to the theater," the report said. Under one contract issued in 2005, Force Protection failed to deliver 98 percent of 122 mine-resistant vehicles on time despite getting $6.7 million from the Marines to upgrade its production facilities.
The two companies’ relationships with BAE Systems – currently under investigation by the Justice Dept. for allegedly bribing the Saudi Arabian government – also add to suspicions raised by the IG report. BAE Systems has greatly expanded its armored vehicle interests in recent years and is now seeking to acquire Armor Holdings Inc. Likewise, Force Protection Inc. has partnered with BAE Systems to provide Iraqi Light Armored Vehicles (ILAVs) for the Iraqi police.
Spencer Ackerman at TPM Muckraker addresses the IG report’s limitations:
One thing the report doesn't establish is why these two companies got such lucrative contracts when they were both so clearly sub-par and competing suppliers existed. But Rep. Louise Slaughter (D-NY), who ordered the IG report, said today that she still needs to know "why military officials who were aware of other competitors were overruled," and she's calling on the Oversight and Armed Services committees in the House to hold hearings on the contracts.
If one considers Force Protection Inc. from an investor’s standpoint, it’s quickly obvious that the company has historically performed far worse than “sub-par.” As recently as FY 2005, Force Protection Inc. stated under “Risk Factors” on their amended 10K filing with the SEC, “We had losses since our inception and expect losses to continue in the future. We may never become profitable.” Also, the company’s share price had been virtually flat, hovering around $2 per share since 2002.
Part of the reason for Force Protection operating in the red could have been “Corporate Governance Issues” as chronicled by 10Q Detective, specifically the actions of CEO Gordon McGilton. This reason is supported by a news article from 2003 pointing to consulting costs.
At any rate, Force Protection’s share price, revenues, and assets all skyrocketed in 2006, thus making the company’s balance sheet positive for the first time in its history. As mentioned earlier, the IG report still doesn’t explain how Force Protection and Armor Holdings managed to receive the armored vehicle contracts despite the existence of other competitive companies. Rep. Slaughter also seemed dissatisfied:
"It's been business as usual," Slaughter said Wednesday after reviewing the report. "The lives of our soldiers took a back seat to who got the contracts."
Slaughter said the report raises more questions than answers and that she wants to know if the awards were the result of "influence peddling or insider connections."
-- John Pruett