Did a Federal Judge Hand a Blank Check to Defense Contractors?

Military-Industrial Complicity
“At the end of the day, what does this represent to the taxpayer? … A net loss. This is a contractors’ private club. … This is about them taking care of themselves.”

—A National Guard source speaking anonymously

“Their solution was to make it up,” Victor Kubli said. “That’s right, make it up.” In his opening argument in federal court in Virginia, Kubli alleged that Charles Patten, the owner of IIF Data Solutions, lied to the General Services Administration (GSA) to get his company on a list of approved government contractors, fabricating schedule prices, terms and conditions.

“They really wanted one [a contract], but they had a problem, they had a number of problems,” Kubli told the jury. “The first problem, they didn’t have a commercial pricelist. Second problem, they didn’t have any sales off the commercial pricelist at the prices identified in that pricelist. … The evidence will show, this defendant did not have anything remotely approaching the type of commercial sales history required to earn them a GSA Schedule contract.”

Kubli represents Thomas Ubl, a whistleblower who in 2006 had filed a False Claims Act (qui tam) fraud claim against IIF Data Solutions. Ubl had worked for the Virginia-based contractor that supplies information technology, manpower and other services, primarily to the United States National Guard.

Patten, a retired Army National Guard major, said that his wife, Deborah Patten, who was listed as IIF’s president, is the majority owner of the company. IIF also employs the couple’s son, Charles Patten Jr., their daughter, Sarah Patten, and other family members.

Patten had entered into a settlement agreement with Ubl that totaled more than $11 million. However, after months of stalling by the Department of Justice, whose approval was required to settle the case, the offer was retracted, including an initial $1.5 million payment, forcing the issue to trial. Ubl sought $140 million in damages.

The case was tried in October 2009 in Alexandria, Va., before Federal Judge Liam O’Grady and a jury.

Kubli told the jury that the GSA contracting process could be compared to Office Depot selling staplers. “The defendants and many other contractors sell labor categories,” he said. “A labor category is really nothing more than labor, at an hourly rate, of persons with a defined level of experience or minimal level of education in certain areas. …”

Ubl, who had been hired by Patten to work on GSA contracts, claimed that because the company lacked a sales history and a commercial pricelist, and because labor categories were being manipulated, Patten had defrauded the government. Ubl also argued that Deborah Patten was not an “owner” of IIF, which had been designated a “woman-owned” business by the GSA. And that the result of Patten’s alleged fraud was to add $18 million to what the company billed the government for three contracts.

A qui tam lawsuit allows the party filing the suit to represent the interest of the United States government, claiming a percentage of any monetary award the government receives.

In his opening remarks, Robert J. Cynkar, a member of the defense team, described Ubl as a “bounty hunter.” He told the jury that Patten and his consultants had made “errors and mistakes” but that the “real customer here, the government, has never said word one about a problem.”

Cynkar urged the jury not to give Ubl “a dime.”

IIF’s defense rested on the argument that Patten was not responsible, because a consulting firm had prepared his GSA contractor application. And on the rationale that although Patten didn’t have a year 2000 commercial pricelist, he had a history of sales, even if that history wasn’t saved on a hard drive or in a filing cabinet.

Here is how Patten explained it to the jury when questioned by Ubl’s attorney.

 

Patten: Did I have a specific written pricelist? No, I was still pretty new working off the top of my head with my wife.”Kubli: Okay. And how about January of 2000, Mr. Patten?”

Patten: No sir, I did not.

Kubli: Well, explain to me why this pricelist is dated effective January of 2000?

Patten: If this is the pricelist that I submitted, it would be because Mr. Seikaly at Selebre, the people I hired to help me do this thing, said, hey guys, we have got to get one of these. Let’s take all those numbers off the top of your head now and get them on paper and we have to do that.

He did that. And I believe, I don’t know the date of the correspondence or anything, but he sent it back. And it was dated ’98. … But I said, no, we really didn’t have these, I don’t feel good about dating this thing any time in 1998, that it should be 2000 maybe. …

After hours of testimony, it was evident that IIF’s 2000 commercial pricelist didn’t exist on paper in the year 2000.

IT’S ALL RELATIVE—In an attempt to establish that Patten had lied about labor categories he was charging the government for, Ubl’s attorneys called retired Air Force Col. Neal Fox to testify as an expert witness. Fox had once worked as the GSA’s assistant commissioner of acquisitions. He was prepared to provide critical information about IIF’s employment and billing practices. But in a ruling that Ubl claims completely undermined his case, Judge O’Grady drastically curtailed Fox’s testimony.

Yet Patten didn’t exactly vindicate the claim that he had gamed the labor category qualifications. Two years after his son graduated from high school, Patten assigned him [and billed for] a labor category that required a bachelor’s degree in one of four specific disciplines or four years of experience. Patten justified the billing rate because his son had received five months of computer training while in the Army. The senior Patten argued that the Army course provided more computer training than his son would have received in four years of college. Charles Jr. testified that when he told a friend enrolled in a four-year college information systems program about the National Guard’s training and certifications, “he put his college on hold and joined the military.”

And although her hours weren’t billed to the government, Patten’s daughter, Sarah, said in a sworn deposition that her wage-and-hour information wasn’t what it appeared to be.

“My father put us on the payroll to max out my 401(k),” Ms. Patten said. She admitted she had done no work for the company while she was listed on the payroll as working 394 hours in December 2001.

Ms. Patten also said that her mother, president and 51 percent owner of the company, was never in IIF’s offices. The judge, however, limited testimony regarding Ubl’s claim that the designation of IIF as a woman-owned business was fraudulent. The allegations, Judge O’Grady said, hadn’t been properly pled in the complaint filed by Ubl’s attorneys. He added that the GSA wasn’t particularly interested in sorting out fraudulent claims of women-owned businesses.

After a week of testimony — and a series of adverse rulings against Tom Ubl — the jury found that Patten had not defrauded the government.

The judge had no reservations about the verdict.

“I am pleased that you will be able to continue in your career post-military in the capacity you do with the company that you represent, and I think that’s absolutely appropriate, and the jury got it right,” he said to Patten. “I wish you the best, and your family as well.” He also awarded Patten’s attorneys $500,000 in legal fees, to be collected from Ubl.

Ubl is asking a federal appeals court to overturn the lower court decision. Briefs from both parties’ attorneys were submitted to the appeals court in October.

The nonprofit Project on Government Oversight (POGO) filed an amicus brief in August. POGO investigates corruption and other wrongdoing to improve federal government accountability. Founded in 1981, it is best known for exposing Pentagon waste, including the infamous $640 toilet seats, $7,600 coffee makers and $436 hammers.

POGO General Counsel Scott Amey said that Judge O’Grady’s decision will drastically alter procurement practices. “If this case is allowed to stand,” Amey said, “it boils down to the gutting of the GSA contracts.”

Amey explained that the schedules were put in place to create “full and open competition” among vendors. If one vendor is allowed to manipulate the terms of the schedules, they are meaningless.

“The GSA can change the schedules,” Amey said. “But they have to change them for all the vendors who are on the schedule.” Patten had made his own changes, with no apparent objection from contracting officers at the National Guard Bureau (NGB). The Bureau is housed in the Defense Department and administers the National Guard.

Amey also warned that by accepting IIF’s government knowledge defense — “that the National Guard Bureau’s knowledge and acceptance of the falsity in IIF’s prices and terms excused IIF’s false statements” — Judge O’Grady further eroded the GSA pricing system.

According to POGO’s brief, the government spends $50 billion a year on GSA contracts, and unless the appeals court overturns Judge O’Grady’s decision, the program that safeguards that money is gone.

“I’ve rarely seen a case with less merit than this one,” Judge O’Grady said at the conclusion of the trial. (O’Grady was overtly hostile to Ubl and his counsel, at one point telling one of Ubl’s lawyers, “You are going to a trial advocacy course when you leave here.”) IIF’s attorney Christopher Kachouroff said that this was Tom Ubl’s third qui tam suit. “That wasn’t part of the [court] record,” he said. “But it should be part of the public’s record.”

A federal appeals court will be the final arbiter of Judge O’Grady’s application of the law, if not the case’s merits. Yet this protracted and complex lawsuit should be of interest to the public, because it exposes a system that appears to be rife with cronyism yet gets scant scrutiny from the Congress or the media. Congress pays little attention because the General Services Administration is financed by a tax on government contractors rather than an annual appropriation (see p. 4). The media pay little attention because information is hard to obtain, and because the NGB, the GSA, and the contractors who sell services, material and manpower operate in relative obscurity.

OFFICERS’ CLUB—”It is a closed society, run from the inside,” said a National Guard source who has been involved with the Guard for more than 20 years. “It’s the rabbits watching the lettuce. [Ubl’s] suit cracked it open. … That’s why I’m talking. The only thing that has the potential to change this right now is this lawsuit. It’s money. It would sting them. It’s reporters looking at a corrupt system.”

The source, who requested that his name not be used because speaking openly would put his current position in jeopardy, described a revolving door through which retiring National Guard officers move seamlessly into civilian life, where prearranged second careers await them with contractors who sell goods and services to the National Guard.

The source said that one retired Guard officer who worked for IIF Data Solutions would search out retirement postings to deliver to Patten, who would immediately offer employment to the retiring officers.

The practice, he said, was not limited to IIF. It is an industry standard that has filled contractors’ executive suites with retired Guard officers dealing with the band of brothers they left behind, while some of those brothers await their own $120,000-plus contractor salaries to supplement their military retirement.

“It’s an employment Mecca for insiders,” the source said. He described contracting firms as “officers’ clubs.”

Arrowpoint Corporation, for example, is the Virginia-based information technology contractor where Charles Patten Sr. began working when he retired from the National Guard. It was home to retired Deputy Secretary of the Army Todd W. Weiler, who had previously served as an Army officer; retired National Guard Col. Maury Mayfield, who had worked with Patten while both men were in the National Guard; retired Major Patten himself; and Charlie Small, another retired National Guard officer.

Consider yet another officer.

In 2003, Rory Froehlich was promoted to colonel and named “Division Chief of Personnel Programs, Manpower, and Resource Division NGB-ARM,” according to an alumni magazine story based on a National Guard press release.

A year earlier, his wife, Lisa, had gone to work at IIF as an Analyst III, billing the National Guard $59.99 an hour at the same time her husband was an officer working on procurement for the National Guard. Lisa Froehlich still works for IIF.

When Col. Froehlich retired from the National Guard in 2008, there was a job waiting for him at the Military Personnel Services Corporation. MPSC’s current website includes profiles of a management team comprised of one retired National Guard general and two retired colonels. Froehlich’s out-of-date profile on the business networking site LinkedIn lists him as a “Strategic Analyst at MPSC (Human Resources industry).” His tenure there was brief. After less than a year with MPSC, Froehlich moved into a GS-13 position at the National Guard Bureau.

At deadline, IIF had not responded to questions regarding what qualifications determined that Ms. Froehlich belonged in an Analyst III labor category. Nor did they respond to questions regarding measures the company might have taken to ensure that her work for a contractor was insulated from her husband’s work as a Guard officer, and more recently as a civilian working in National Guard procurement.

As a civilian, Rory Froehlich does manage one IIF account, said National Guard spokesperson John Anderson. Anderson said that Froehlich inherited the contract when he was hired in 2009, and has decided he will manage no IIF accounts in the future. Anderson said that he saw no conflict, and indeed there is no evidence of compromising behavior. He also said that Froelich had obtained an ethics ruling that had cleared him to go to work for MPSC immediately after mandatory retirement from active Guard duty. “He didn’t like the work and applied for the GS-13 position he now holds,” Anderson said. “He must have taken a huge pay cut.”

Some routes to post-retirement employment are more circuitous. In a deposition for the lawsuit, Charles Patten’s daughter, Sarah, referred to Mike Squier as an employee at her father’s used car lot. Brigadier Gen. Michael J. Squier had once been responsible for defending National Guard military construction budgets before Armed Services subcommittees in the House of Representatives. Yet because he had retired as a general, he could accept no employment from a contractor for six months after leaving active duty. So he worked at AutoHaus in Manassas, Va., until Patten could legally bring him on at IIF. (Squier no longer works for Patten.)

Julia Cleckley was the first African-American woman to achieve the rank of brigadier general in the active Army National Guard, where she served as the special assistant to the human resources director. Patten didn’t hire her, but he did recruit and hire her daughter, Ellen Cleckley, while the general was still on active duty. Gen. Cleckley has retired and appears to be promoting her own public-speaking career. Ellen Cleckley no longer works at IIF.

One lawyer I spoke with defended the contractors’ practice of hiring officers after they retired from the National Guard. He argued that the retirees bring with them decades of institutional memory and critically important contacts.

Critics of the revolving-door policy see those critically important contacts as conflicts of interest. That is how the National Guard source we spoke to described it when we asked if the litigation would change the way IIF operates.

“It’s his [Patten’s] business model,” he said. “His M.O. It has worked for him. Put this in quotes: Hire friends. Hire in-laws. Hire Guard officers or relatives of Guard officers.”

He added that it is unfair to single out Charles Patten and IIF. Conflicts of interest and cronyism are part of the business culture. “At the end of the day, what does this represent to the taxpayer?” he asked.

“A net loss. This is their [contractors’] private club. No reflection on what the soldiers in the field are doing. This is about them taking care of themselves.”

—With Lou Dubose. Shawn Martin is a freelance reporter in Louisiana.0