Kerry Investigates Contracts Awarded to Firm That Supplied Faulty Arms to Troops

WASHINGTON , April 10 /PRNewswire-USNewswire/ -- A small business recently under fire for delivering faulty munitions to Afghan security forces may have fraudulently obtained as many as 50 contracts with the Defense and State Departments by claiming to be a Small Disadvantaged Business. Senator John Kerry (D-Mass.) today called on the Departments of Defense and State to explain how Miami -based AEY Inc. was erroneously labeled as a Small Disadvantaged Business, which helps companies access the federal contracting arena, and if this mistaken designation helped the company secure $298 million in defense contracts in 2007.

"Faulty contracting procedures and deficient safeguards are no excuse for putting troops in Afghanistan and Iraq in greater danger," said Senator Kerry, Chairman of the Committee on Small Business and Entrepreneurship. "The Bush Administration needs to explain how and why this mistake occurred not once, but 50 times, and what steps they are taking to make sure that it never happens again."

Senator Kerry called for greater oversight of the contracting process by the Defense Department, State Department, and Small Business Administration. Under contracting guidelines, federal agencies receive credit for meeting Congressionally mandated small business goals when they contract with a Small Disadvantaged Business.

According to a recent news article, AEY was reportedly designated as a Small Disadvantaged Business on June 8, 2006 by the State Department, despite the fact that they had never filed an application or been designated as a Small Disadvantaged Business by the Small Business Administration. AEY went on to obtain 49 additional contracts despite not being designated as a Small Disadvantaged Business in the Central Contractor Registry, a database that lists firms eligible for contracts and their designation status.

Below are the letters Senator Kerry sent to the Department of Defense, the State Department, and the Small Business Administration:

April 10, 2008

The Honorable Robert Gates

U.S. Department of Defense

The Pentagon

Room 3E880

Washington , DC20301-1000

Dear Secretary Gates:

I'm writing today to express serious concerns with the oversight of small business contracting programs at the Department of Defense (DoD). Recent news reports indicate that a 22 year-old from Miami, FL was able to obtain more than $298 million in federal contracts. Not only was this individual - under the corporate name AEY Inc. - providing 40 year-old munitions from China to Afghan security forces, but reports also indicate he may have received these DoD contracts with a special Small Disadvantaged Business designation for which he was not eligible. As Chairman of the Senate Committee on Small Business and Entrepreneurship, I believe your agency owes Congress and the American public some answers.

I am concerned that a lack of oversight of contracting programs at DoD is allowing companies like AEY to erroneously access hundreds of millions of dollars in contracts as an SDB, undermining efforts to level the playing field for small firms. In order to better oversee the SDB program at the Department and to ensure that small business contracting programs are being implemented effectively, I request that you provide answers to the Committee to the following questions by April 16, 2008 :

1. Please outline the process that contracting officers at the DoD follow in order to verify the small business and socioeconomic status of vendors.

2. Please outline any oversight process that the DoD has in place to ensure that contracting officers are aware of the relevant statutes and regulations pertaining to small business programs.

3. Please explain whether AEY received any preferential benefit in contract or task order award as the result of being designated as a SDB.

4. Please explain whether DoD has taken credit under annual reporting of small business goals for any contracting dollars expended with AEY.

5. Please provide a list of all contracts AEY has had with the DoD and any of the branches of the military from FY 2003 to the present.

6. Please provide me with all documents relevant to AEY and any contracts that they have now or have completed with the DoD over the last five years.

In addition to the concerns I have about contracting oversight, I am even more concerned about the consequences for our national security. All of us can agree that Afghanistan is an important front in the global war on terror. As you know, the security situation in Afghanistan is deteriorating, as violence is at its highest levels since 2001. The Afghan security forces are an important part of changing this dynamic, and they have been hampered by inadequate equipment. We simply cannot strengthen the Afghan security forces without proper DoD oversight of defense contractors like AEY who provide essential equipment like ammunition.

Thank you in advance for your cooperation on this important issue. If you have questions about this matter, please feel free to contact me, or have your staff contact my staff at (202) 224-5175.

Sincerely,

Senator John F. Kerry

Chairman

April 10, 2008

Sent via facsimile and standard mail

The Honorable Condoleezza Rice

State Department

Washington, DC

Dear Secretary Rice:

I'm writing today to express serious concerns with the oversight of small business contracting programs at the State Department. Recent news reports indicate that a 22 year-old from Miami, FL was able to obtain more than $298 million in federal contracts, including State Department contracts. Not only was this individual - under the corporate name AEY Inc. - providing 40 year-old munitions from China to Afghan security forces but reports also indicate he may have received these Defense Department contracts with a special Small Disadvantaged Business designation for which he was not eligible. As Chairman of the Senate Committee on Small Business and Entrepreneurship, I believe your agency owes Congress and the American public some answers.

I am particularly concerned with the State Department's role in this matter because your agency was reportedly the first to designate AEY as a Small Disadvantaged Business. After this erroneous designation by the State Department, the company went on to win 49 subsequent contracts and make more than $200 million dollars. This kind of problem could have been avoided if your contracting officers had done a simple check of the Central Contracting Registry which would have clearly shown that AEY was not nor had ever been an SDB. In light of these reports about the lack of oversight at your agency, I would like your answers to the following questions by April 16, 2008 :

1. Please provide any and all documents relating to the State Department's contract with AEY of June 8, 2006 .

2. Please outline the process that contracting officers at the Department follow in order to verify the small business and socioeconomic status of vendors.

3. Please outline any oversight process that the Department has in place to ensure that contracting officers are aware of the relevant statutes and regulations pertaining to small business programs.

4. Please tell me whether AEY received any preferential benefit in contract or task order award as the result of being designated as a SDB.

5. Please provide a list of all contracts AEY has had with the Department from FY 2003 to the present.

6. Please list any contracts that AEY was awarded at the State Department and indicate if any of these contracts were won as the result of a small business or Small Disadvantaged Business set-aside.

Thank you in advance for your cooperation on this important issue. If you have questions about this matter, please feel free to contact me, or have your staff contact my staff at (202) 224-5175.

Sincerely,

Senator John F. Kerry

Chairman

April 10, 2008

The Honorable Steven C. Preston

Administrator

U.S. Small Business Administration

409 Third Street S.W.

Washington , D.C.20416

Dear Administrator Preston,

I'm writing today to express serious concerns with the oversight of the Small Business Administration's small business contracting programs. Recent press reports indicate that a 22 year-old from Miami, FL was able to obtain more than $298 million in federal contracts. Not only was this individual - under the corporate name AEY Inc. - providing 40 year-old munitions from China to Afghan security forces, but reports also indicate he may have received these DoD contracts with a special Small Disadvantaged Business designation for which he was not eligible. Although the Small Business Administration did not grant any of these contracts, I believe your agency has a responsibility to protect the integrity of small business contracting across the federal government and thus bears some responsibility for this reported abuse of small business contracting set-asides.

Lack of oversight of contracting programs within the federal government is allowing companies like AEY Inc. to erroneously access hundreds of millions of dollars in contracts as an SDB, undermining a program created to level the playing field for small disadvantaged businesses. In order to better oversee the SDB program and small business contracting, I request that you provide answers to the Committee to the following questions by April 16, 2008 :

1. Please describe the specific oversight activities that SBA undertakes to ensure the integrity of the SDB program.

2. What if any benefit in accessing federal contracts is provided to Small Disadvantaged Businesses? Any answer should include but not be limited to a discussion of the history and relevance of the Price Evaluation Adjustment or any other mechanisms to increase the competitiveness of SDBs.

3. What training does the agency provide to the contracting offices throughout the Federal Government with respect to small business programs?

4. How often does the agency audit SDB companies?

5. Please provide all relevant documents pertaining to AEY Inc.

Thank you in advance for your cooperation on this important issue. If you have questions about this matter, please feel free to contact me, or have your staff contact my staff at (202) 224-5175.

Sincerely,

Senator John F. Kerry

Chairman

SOURCE U.S. Senate Committee on Small Business & Entrepreneurship