The corrupt Military: A Case History

...Information received by the subcommittee indicates that normal procedures may not have been followed and that favoritism toward the successful bidder may have been involved,” says Rep...

...And E-Systems has been good to the military-or at least to former military officials...

...By the way, on July 15, four days after the GAO ruled that the Bristol protest had merit, Eugene E. Berg resigned as Assistant Secretary of the Army (Installations and Logistics...

...The contract in question is between the Army, where he now works, and E-Systems, Inc...

...The Army,” Brooks said, “being somewhat resourceful in getting what they want done, did not exercise the option...

...Few consider dishonesty a major problem among federal career employees...

...The Koreans could designate the supplier...

...It was decided that competitive bids would not be necessary...

...Bristol Electronics of New Bedford offered the low price of $3,726,284, E-Systems of Dallas was high ($5,588,5 19, and Electrospace Inc...

...But on May 4, the U. S. Army Electronics Command solicited “planning” bids from only two cqmpanies, Electrospace and E-Systems...

...I think that is the most high-flown bunch of hokum I have seen the Army provide in a lohg time...

...That’s a new word for change...

...The request is hereby granted,” Worthen’s memo said, “by direction of the Assistant Secretary . . . . ”I The Appearance of Partiality Additional procurement contracts for AN/PRC 77 radio contracts were to be let for bid by early summer 1977...

...The contractor would have to have previous experience manufacturing the equip ment for the government, and the capacity to produce 1,000 units a month...

...L. K. Lauderdale, vice president, spent six years with the CIA, directing the division of science and technology...

...On February 25, 1974 there was another contract change...

...YOU make a good judgement...

...Eugene E. Berg, the man he replaced in the Pentagon, the Man responsible for the contract that enraged the subcommittee Brownman .now faced, had gone on to become a vice president of E-Systems...

...Brownman and his generals followed Dembling before the subcommittee, but they too were unable to placate the congressmen...

...Electrospace Inc., a small radio manufacturer in New York City, began negotiating with the Korean government in October 1969 to supply field radios to the Korean army...

...James Henderson was a Nieman Fellow last year and is now a reporter for the Dallas Times-Herald...

...The Army apparently ignored this recommendation...

...In January 1972, representatives of Oriental Precision visited the Electrospace plant...

...On July 26, the U. S. Military Assistance Group in Korea requested that formal bids be solicited and delivered on August 25...

...But in this case, the solicitation served mainly to draw E-Systems into a lucrative market...

...During that period, E Systems was steered to a $32-million contract with the Korean Defense Ministry, a deal that was close to being locked up by another firm until the Army stepped in...

...I believe that this is just a good case of sloppy workmanship and nothing else...

...Eugene Berg, vice president, is a former Assistant Secretary of the Army...

...of Dallas, where he had been a vice president a few years earlier...

...Electrospace did not immediately abandon its pursuit of the contract...

...A year later he became a vice president of E-Systems...

...Bristol remained low...

...I would feel like I would not The Washington MonthlylSeptember 1977 want you to buy anything for me,” Brooks said...

...Assistant Secretary of the Army Harold Brownman, in charge of installations and logistics, is accompanied by two generals and a civilian procurement officer...

...The Army informed us that because of our recommendation it would not exercise the option...

...The men in the jbllowing example may be innocent of anything other than a conflict of interest, but they are part of a larger pattern that should disturb us all...

...It modified...

...As later explained by the Pentagon press office, that decision was based on the fact that the Koreans would be purchasing the radios with U. S. military grants, which require, under procurement regulations, competitive bidding...

...But E-Systems lowered its unit cost by $150 to exactly $5 below Bristol’s original quotation...

...It is now assumed that an officer, if he does not continue to work for the government, will join the staff of a military contractor upon retirement...

...The purchase would not be made with U. S. grants, but with “military credits”-repayable loans...

...On February 21, 1974 the Army again made minor changes in the specifications-deleting quality assurance provisions-and asked the three companies to submit cost impact statements...

...Room 2154, Ray burn House Office Building...

...It is not a good day for Brownman...

...The Army’s generosity vaulted it from relative obscurity to preeminence in the communications and electronic warfare market...

...The circumstances seem to point to a predetermination on the part of the Army that E-Systems would receive the contract...

...If the Army behaved curiously in Over a period of four months, with no significant change in the design specifications but a substantial reduction in the quantity, the E-Systems unit price dropped from $799.50 to $528...

...None changed its price...

...John W. Dixon, president, is a former assistant comptroller for the Department of Defense...

...The Army scratched 1,636 units from the contract quantity, asking now for 5,464 units...

...The reason...

...Berg has maintained that he was not involved in the contract and had “never heard of E-Systems until well after that...

...I certainly hope so...

...They got one of those thesauruses and looked it up...

...Since the Koreans were going to pay back the money, they could spend it any way they liked...

...It’s a brand new word...

...The Army agreed...

...Meeting: National Security Subcommittee of the Committee on Governmental Operations...

...W. F. Raborn, member of the board of directors, was head of the CIA for 14 months during the Johnson administration...

...While the authors of the Small Business Act, who specifically designated government procurement as a means of assisting and protecting companies like Electrospace (?OO employees), might have been waqed by such a transaction, the Army had other ideas...

...Under the modified version, the prices ranged up to $943, which explained to the subcommittee’s satisfaction how E-Systems managed to make such drastic cuts in its original bids...

...An evaluation of the planning bids revealed that Electrospace had the lower price and probably would be the low bidder in formal competition...

...Edward Brooke, “and that is E-Systems...

...None of the competitors altered their prices and Bristol remained the low bidder...

...We made that recommendation in the belief that such action would eliminate the gravamen of the protest and any possibility of windfall profits by E-Systems on the option quantity,” Paul G. Dembling, the GAO’s general counsel, told the subcommittee...

...Less than a year had passed since Rep...

...Just a beautiful example of how not to do business,” Brooks says...

...It is either subterfuge or really sloppy workmanship or fraud,” Brooks says...

...Robert Nelson Smith resigned as Chief of Staff of United Nations Command/U.S...

...A dozen or more companies were in the radio manufacturing business and all should have had a shot at the contract...

...Over a period of four months, with no significant change in the design specifications but a substantial reduction in the quantity, the E-Systems unit price dropped from $799.50 to $528...

...Not only should there be fairness toward and equality among bidders, but there should not even be the appearance of partiality . . . . ” When the Army wrote its specifications for the 1977 contracts, it included two notable provisions...

...June 22, 1976...

...Then they just play games with you like you’re in the third grade and they run right around you and go and do as they please...

...You make a good decision,” Brooks persisted...

...His duties are officially listed as public relations...

...Brooks had recessed his subcommittee with this admonition: “The Department of the Army needs to have a tightening up of its methods and procedures in awarding government contracts...

...It would appear that it did, yes sir,” the GAO’s Dembling replied...

...Fair enough, it seemed...

...On July 11, the General Accounting Office upheld the protest and ordered the Army to re-bid the contract...

...Not surprisingly, Bristol increased its unit cost...

...There’s only one company that could meet those requirements,” says Nathan Hardy, aide to Sen...

...I will just shop for myself, thank you...

...Four years ago, a group of investors headed by John Dixon bought E-systems from the conglomerate Ling-Temco-Vought, and since then the company’s sales have doubled-to more than $320 million a year...

...On August 17, however, an important meeting was held in the Pentdgon, attended by representatives of the office of the general counsel, the Electronics Command, Headquarters U. S. &my Logistias, and the Defense Security Agency...

...Robert D. Worthen, acting deputy director for material acquisition, to the command of the U. S. Army Material Command...

...Given the U. S. military’s strong advisory role in Korean military affairs since the 1950s, it is worth noting that two months after the Koreans designated E-Systems as their supplier, Lt...

...It blatantly skirted a GAO directive...

...Did this action not circumvent clearly the recommendation of the GAO...

...Only the E-Systems price changed, dropping from $5.5 million 58 to $4.4 million and putting the company in second place...

...This one, by any production logic, could be expected to alter the unit prices upward...

...They did not exercise the option...

...in Seoul to assemble components produced by Electrospace in New York...

...The result is a military procurement process increasingly influenced by the future employment possibilities of the military officers involved...

...But in the appendix to the hearings transcript is a memo, dated March 13, 1974, written by Col...

...Here I have to defend the Army,” Brownman says...

...Sometime before May 4, 1972, the Defense Security Agency’s foreign military sales desk decided that the Korean contract would have to be bid competitively...

...sidered the prospect sufficieqfly bright to start production plans...

...It is called semantics...

...aiding E-Systems in Korea, its actions were even more remarkable in dispensing a 1974 contract to the Memcor division of E-Systems-a contract that was revised and relet four times before E-Systems came in low, and one that mysteriously grew from $2.8 million to $1 1 million despite protests from the General Accounting Office...

...They accepted modifications and ordered another 10,000 of those radios...

...According to a “procurement history” submitted to the subcommittee by the contracting officer, Robert J. Crawford, the Army negotiated with Bristol and held another bid letting with no change in the specifications...

...Procurements are not always issued out on the street in the best of environment in terms of timeliness, sense of urgencies, and in terms of that sort...

...of New York was square in the middle...

...Brownman had nothing to do with the contract award...

...Unquestionably, the military has been gdod to E-Systems...

...Under the original contract, the Army paid $528 per unit...

...In 1971, samples were sent to Korea and an agreement was reached for the Oriental Precision Co...

...Jack Brooks of Texas, chairman of the subcommittee...

...Subject: Questionable contract for mobile field radios by the Department of the Army...

...Although the bidding had been delayed through four months of specification changes, the Army now pleaded urgency and persuaded the GAO to let the contract stand...

...Eventually the GAO relented, but on one condition: the Army was not to exercise the option for the additional 10,000 radios...

...The $2,884,992 contract was awarded to E-Systems on March 14, and Bristol fded an immediate protest...

...But the truth is that corruption has become the rule among military career people...

...However, there has been a tenor in this hearing which might imply that there were people in the Department of the Army who might have been guilty of some wrongdoing or some improper design of approach to this procurement...

...It bought radios for itself at $528 apiece, then contracted for its foreign customers to pay as much as $943 for them...

...And the company involved seems to merit some special attention, having raised the routine conflicts of 56 interest in military contracting to a fine art...

...Although no contract had been signed, officials of Electrospace con During that period, E-System was steered to a $32-million contract with the Korean Defense Ministry, a deal that was close to being locked up by another firip until the Army stepped in...

...What the Army did was “modify” the contract and order the 10,000 additional units-all within a few weeks of the GAO recommendation...

...It6 corporate headquarters beside the Lyndon Baines Johnson Freeway in North Dallas is populated by men from the highest reaches of defense and intelligence agencies...

...Forces in Korea to become E-Systems’ director of Far East Operations...

...It refers to a letter requesting authority to award the contract to E-Systems prior to resolution of the Bristol protest-a letter that was “hand delivered” to the Assistant Secretary, who was Berg...

...Five companies responded with bids, but only three were deemed valid...

...Asking for planning bids is a common practice, designed to give a governmental agency some notion of what the cost of a contract will be...

...and there is a long list of other brass from the Air Force, Navy, Army, CIA, National Security Agency, and Federal Aviation Agency...

...They just got 10,000 more...

...It protested the bid cancellation, and a few months later, Halsey Hubbard, a vice president, visited Seoul to try to resume the talks, “Forget it,’’ he told his boss later, “their minds are made up...

...The Army had prolonged the bidding, but pleaded urgency in commencing with a contract that was under protest...

...Again the Army did not make the award...

...On July 13, 1973, the Korean Defense Ministry asked that a “sole source” contract be awarded to E-Systems, and a memo of understanding between the two governments was signed on August 14...

...This is the chronology of the transaction that Assistant Secretary Harold Brownman was summoned to discuss with the Brooks subcommittee in June of 1976: On November 27, 1973, the U. S. Army Electronics Command solicited bids for 6,990 AN/PRC 77 radio sets for use by U. S. forces and an optional 10,000 units for sale to foreign customers...

...At‘ the time, in March of 1974, he was not associated with E-Systems, having resigned from it a couple of years earlier to become deputy director of the Cehtral Intelligence Agency...

...So, from time to time one can expect and countenance errors, goofs, if you will...

...Explanations do not satisfy him...

...Some Special Attention Such hostility is rare in congressional hearings on defense spending, but the incident was a particularly egregious one (more on that in a minute...

...Very, strange...

...It provided for an initial $8.4million worth of radios, $2.6 million of which would come from military grants, a funding source that the Pentagon now claims requires competitive bidding...

...There is no evidence that E-Systems, prior to the solicitation, was even aware that the Korean Army was shopping for field radios...

...Instead of awarding the contract, the Army made a minor change in the specifications-it related to “interchangeability” and was not considered a price factor-and asked for new bids...

...Indeed they were...