Jul 10, 2008 6:00 AM

Weldon's Firm Made Defective-Tank Deal With Iraq

If, someday, there are T-shirts sold in Iraq that read, "the United States invaded our country and all we got were these crappy tanks," here is the explanation for what happened. In 2005, Defense Solutions (the Pennsylvania-based arms dealer that employs former Congressman Curt Weldon) got itself a contract to refurbish Soviet-era T-72 tanks for […]

If, someday, there are T-shirts sold in Iraq that read, "the United States invaded our country and all we got were these crappy tanks," here is the explanation for what happened.

In 2005, Defense Solutions (the Pennsylvania-based arms dealer that employs former Congressman Curt Weldon) got itself a contract to refurbish Soviet-era T-72 tanks for the Iraqi government. But the deal, for decades-old equipment, included terms so lopsided, they likely would have been illegal under U.S. law.

The essence of Defense Solutions' proposal was to arrange a donation of of some 77 Hungarian-owned T-72s. The Hungarians were likely happy to unload the outdated tanks for free, and the Iraqi government would pay Defense Solutions to refurbish them. That sounds fine, except the contract was what many might consider a sweetheart deal. The contract appears to be a "cost plus percentage of cost fee" agreement, meaning Defense Solutions was essentially guaranteed a profit regardless of what condition the tanks were in or how much it cost to get them running (a copy of the contract [.pdf] was provided to Danger Room).

Defense Solutions estimates the cost to refurbish the tanks at about $3.2 million, and the company is entitled to a fee based on 8 percent of the costs. If the contract goes 75 percent over cost, Defense Solutions must notify the Iraqis, but that amount "will not act as a ceiling on the actual price of performance," the contract states.

Under typical U.S. defense contracts, fees are tied to performance (thus giving the contractor an incentive to keep costs down). Defense Solutions gets its fee, regardless. And with an 8 percent fee, the more you spend, the more you earn. This would be a most unusual arrangement, at least in the United States, where cost plus percentage-of-cost contracts are prohibited under U.S. law. As federal acquisition regulations state quite clearly: "The cost-plus-a-percentage-of-cost system of contracting shall not be used (see 10 U.S.C. 2306(a) and 41 U.S.C. 254(b))."

The Pentagon's Defense Acquisition University's "ask a professor" website sums up the obvious reason for this prohibition: "A cost plus percentage of cost type arrangement would encourage the contractor to experience as much cost as possible to receive a greater amount of fee."

Why would Iraq agree to such a contract? It's not clear, but Ziad Cattan, the man the United States chose to oversee Iraq's defense procurement, signed the contract. As the LA Times reported, Cattan, has since been accused of massive corruption, much it involving no-bid contracts for Soviet-era equipment.

So, what happened to the tanks?

Well, the Soviet-era tanks had been sitting in storage for about one or two decades, Defense Solutions states in its progress report. (Copies of the documents were provided to Danger Room; the pictures above and below are taken from them.)

Problems, not surprisingly, started on day one.

In one of its initial reports on the contract, Defense Solutions stated: "As of this date, seven tanks still have not started and therefore the checks could not yet be made."

Nonetheless, things were not that bad, the company asserted: "Overall, I believe that the tanks are in good condition considering that they were laid up for 10 to 20 years. Electrical problems on 24-volt systems are certainly expected due to moisture and corrosion. Hydraulic seals dry out and rubber dry rots. At this point, we think we can still meet the contract deadlines."

A few weeks later, however, the reports from Defense Solutions indicated more problems. "[T]he running test could not be performed on three tanks due to transmission problems. These units are still being troubleshot," a progress report from the company stated. "The number of tanks needing new engine head gaskets is now two. I believe the most costly repairs will likely be to the sighting systems. On one of the tanks, the torsion bar is bad, and there is a photo of a mechanic being able to turn the wheel with a pike, indicating that there is no weight on the wheel."

By July 8, 2005, the company was blaming the Iraqis for the tank problems. "We are at a crossroads on this project," the Defense Solutions report reads. "If we do not get decisions regarding repairs which are above and beyond those envisioned when the contract was signed, we will have great difficulty in meeting the contract deadline."

More and more parts, such as fans, exhaust adapters and mud flaps were found missing from the tanks, and the price to replace them was growing. Because the contract was cost plus fee, the Iraqis' only choice was presumably to pay the additional costs, relying on whatever cost estimates Defense Solutions provided. So, for example, in one progress report, Defense Solutions quotes a price of $824 per tank for ventilation fans. Is that too much to pay? Who knows, because that's the cost Defense Solutions quoted.

The report concludes with this final note: "Finally, some information I reported in the activity report of June 24 was inaccurate. I had indicated that, with the spare parts just received, we could get more than 50 fire control systems working with minimal costs. It now seems that the donated parts did not contain the items needed to allow for the repair of these fire control systems."

Danger Room e-mailed Defense Solutions CEO Timothy Ringgold to ask him about the tank contract, but we haven't heard back yet. It's unclear what the final status of these 77 tanks is, but in 2006, Defense Solutions cited the contract as being successfully completed. The total cost to Iraq to refurbish the decades-old tanks? Confidential.

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