Amid Bribery Scandal, Navy Changes Business Practices For Overseas Port Calls

In the wake of an international multimillion dollar bribery scandal that so far has implicated at least six military officers, the Navy is making some changes to the way it handles contracting in foreign ports, officials said Friday.

Three Navy officers have been arrested and charged so far, as have a senior Naval Criminal Investigative Service agent who helped to abet the bribery scheme and the defense contractor who allegedly gave the bribes, Leonard Francis, the head of Glenn Defense Marine Asia.

Francis’ firm has been providing port services to Navy ships in southeast Asia for 25 years, but according to federal prosecutors, he was able to overbill the Navy by at least $20 million over the last several years, in part, by using sensitive information he plied from Navy officers by offering them free travel, hotel rooms and prostitutes.

And there will be more shoes to drop in the case, Ray Mabus, the secretary of the Navy told reporters Friday.

“What kind of disclosures those are, I’m not at liberty to say. But I certainly don’t think we’ve seen the end of it,” he said.

Mabus stressed that the scandal only came to light because of the Navy’s own internal investigation, notwithstanding the fact that one of its own NCIS agents was part of the alleged conspiracy.

That agent, John Beliveau, pleaded guilty to bribery and conspiracy charges in federal court last week. If he cooperates with investigators as part of that plea agreement, the investigation could expose other conspirators.

Some of the policy changes Mabus announced Friday are intended to get directly at the kind of methods GDMA used to overcharge the Navy.

According to prosecutors, Leonard’s company routinely and dramatically underbid its competitors for husbanding services in foreign ports. But those bids were only a starting point. From there, the company would manage to sell additional services to Navy ship supply officers that weren’t covered by the base contract.

“I do think there were gaps in the contracting process,” Mabus said. “Several years ago, we set up a standardized list of fixed-price line items. And the estimate was that unpriced line items should account for about one percent of contracts, because ships tend to need the same thing going into port over and over again. But sometimes the husbanding agent would come in and say, ‘We don’t have that thing you’re asking for that’s a fixed-price line item. We do have this other thing, but it costs more.’ And we didn’t have the centralized ability to tell the contracting officer on the ship, ‘Don’t do that.’ That’s one of the reasons that we are doing much more in terms of centralization in these contracts and in the way that we’re going to centralize the oversight so that we don’t put a ship’s commanding officer or the supply officer in the middle of these things.”

Under the Navy’s new policies, underway supply officers and commanding officers will be taken out of the process of making payments to overseas vendors, and the service says it will do a better job of providing contracting support to ships that are headed for foreign ports.

Also, the Navy will expand its list of the line-items that contractors must provide ships at a fixed price, in order to eliminate the last-minute haggling process that led to massive overcharges in the GDMA case.

“This would be like us going on a business trip and going to the rental car counter, and the rental agent saying, ‘I can upgrade that for you,’ and you simply upgraded without asking the price of that upgrade,” said Elliott Branch, the deputy assistant secretary of the Navy for acquisition and procurement. “Unfortunately, that’s what happened in some cases, and it happened because we have people out there who are focused on the mission, as they should be. We’re now asking them to focus more closely on the business.”

Part of GDMA’s strategy, according to prosecutors, was to use the Navy insiders it recruited through bribes to direct their ships to ports where the Navy had less visibility into local cost structures, making it easier to overcharge the government and get away with it.

Mabus is also directing the Navy to come up with better guidance on ships’ overseas requirements, develop new oversight processes for services that aren’t already accounted for as fixed-price items in Navy contracts and to create a standardized process across the entire fleet for requisitioning items that ships need while they’re in port.

At the same time, Mabus says, the Navy is taking a more comprehensive look of all of its contracting processes for husbanding services, based on an examination that the Navy department’s top acquisition official, Sean Stackley, started in September.

“A red team of experts from across the fleets and from Navy Supply Systems Command has been formed to scrutinize the husbanding contractor process from end-to-end and to recommend changes to correct deficiencies in those procedures and to provide maximum effective oversight of the process,” Mabus said. “When their work is done – and based on that work – Assistant Secretary Stackley will issue a revised acquisition strategy that will be used on all husbanding contracts globally.”

Officials said the Navy has also adjusted its posture toward overseas vendors to require supply officers to delve more deeply into companies’ past performance with the U.S. government before deciding whether to do business with them, rather than just checking to see whether they’re on the federal list of companies and individuals who are suspended or debarred from getting government work.

Mabus said the Navy also has “dramatically increased” its use of the suspension and debarment process since 2009. However, Navy officials said they could not immediately provide statistics to support that assertion. In the most recent publicly available federal statistics, covering the years between 2001 and 2011, the Navy’s numbers showed no clear trends, but tended to lag behind the Army and Air Force.

But when the Navy does decide to debar a contractor for violating laws or failing to deliver, it’s aggressive about it. In recent months, the service has used its legal discretion to block vendors from the federal procurement system for as long as six years. The de-facto maximum under federal law is three years.