The Navy has quietly lifted the suspension of a shipping contractor under investigation for possible fraud, allowing the company to compete for new work. In exchange, the company has agreed to pay for an independent audit that could help the Justice Department determine how much it may have overcharged the government.
Records show that the Navy recently decided to reinstate Inchcape Shipping Services, a company based in Dubai in the United Arab Emirates. The move came after a federal judge questioned whether the service had presented enough evidence to justify the suspension. Contracting experts said it was unusual for the government to turn to an outside auditor in this type of case, and some questioned whether an independent firm could do as thorough a job.
The auditing firm must be approved by the Justice Department, which is conducting a civil fraud inquiry into whether the company systematically overcharged the Navy in providing provisions and sewage-removal services for warships in the Middle East and Africa. Officials said the audit could help spur settlement talks between Inchcape and the Justice Department.
Former federal contracting officials said that the need to hire an outside auditor also showed how little the Navy had done to get to the bottom of the accusations against Inchcape since they first surfaced in 2010. In November, the Navy suspended Inchcape, saying that the company — which had received almost $300 million in Navy contracts — had displayed “conduct indicating questionable business integrity.”
“To wait for the Navy to do a serious audit is like waiting for Godot,” said Charles Tiefer, a professor at the University of Baltimore School of Law and a former member of the federal Commission on Wartime Contracting in Iraq and Afghanistan. “Considering that the Navy has sat on its hands for years, getting an accounting from a private firm is a sign of desperation.”
Asked why they had not conducted their own audit, Navy officials said they had not had “full access” to the documents subpoenaed from Inchcape. They said they were cooperating with the Justice Department and would review the work of the independent auditor.
The accusations against Inchcape, which is owned by the Dubai government, stem from a whistle-blower suit filed by a company employee in 2010. Employees asserted that Inchcape had received discounts from subcontractors and then pocketed the difference instead of refunding it to the Navy.
Court records show that the Defense Department issued a subpoena in 2011 ordering Inchcape to hand over all of its Navy billing records since 2002 to the Naval Criminal Investigative Service, which was assisting in the investigation. And in late 2012, a federal judge ordered Inchcape to give investigators a copy of an internal company audit from 2008 into some of the questionable billings.
But after Inchcape challenged its suspension in December, the main evidence that the Navy presented was that 2008 audit. James F. Merow, a judge on the Court of Federal Claims, said that it did not appear that the Navy’s suspension office had “conducted any meaningful investigation” of other documents “despite having had time to do so.”
Faced with the possibility that the judge might dismiss the suspension, records show, the Navy agreed to lift it in exchange for promises from the company to follow federal rules, refund overcharges, and hire independent monitors and auditors. Inchcape said in a statement that it was delighted that the suspension had been lifted but declined further comment. The Justice Department also declined to comment.
The problems with Inchcape are part of broader contracting issues in the Navy’s global ship-supply network that burst into view in September when the Navy’s main supplier in the Pacific, Leonard Glenn Francis, was arrested on charges of conspiring to bribe Navy officials with cash, trips and prostitutes.
A third ship-supply company used by the Navy, Multinational Logistic Services, placed a senior executive on leave in December over questions about his previous job at Inchcape.
Inchcape has already lost most of its Navy business, with Multinational Logistic Services winning a contract this week to handle ships in the Middle East. Inchcape also works for other federal agencies.
This week, the House Committee on Oversight and Government Reform asked the Navy secretary, Ray Mabus, to provide records of ship-supply contracts since January 2009.
The guilty plea was announced by Loretta E. Lynch, “The defendant sought to use deception, corruption, and greed to enrich his company at the risk of jeopardizing the U.S. Army’s supply lines in Afghanistan. Attempts to corrupt American officials will not be tolerated, either at home or abroad,”
