What Ted Stevens, Bolivian cocaine and Halliburton have in common

Or, how the Alaskan Inupiat Eskimos got a no-bid contract in South America from the U.S. government.

By Michael Scherer

Read more: Alaska, Politics, News, State Department, Dick Cheney, Michael Scherer

Photo: AP/Chris Miller/Galdieri

Photo composite of Ted Stevens addressing the Alaska State Legislature in Juneau, Alaska, Monday, March 19, 2007 and a background image of a Bolivian military officer looking on while a cocaine pit is burned in the middle of the rainforest region of Chapare in Bolivia on Tuesday, May 16, 2006.

June 19, 2007 | WASHINGTON -- Deep in the jungles of the upper Amazon, in a land rife with coca plantations and drug runners, roughly 1,500 Bolivian soldiers and police camp out each night at U.S. taxpayer expense. They are offered three meals and a snack each day as part of a $31 million State Department effort to stop the cocaine trade at its source.

Until this spring, the troops were fed by a local Bolivian company, contracted to the United States through a competitive process for $3.34 per soldier per day. But in March, the same contract was awarded -- without competition -- to an Alaskan Inupiat Eskimo firm, Olgoonik Management Services, which is headquartered 180 miles north of the Arctic Circle. The new cost is $5.16 per soldier per day, an increase of 54 percent, or about $1 million more each year.

Given the State Department's $32 billion budget, an additional $1 million for food hardly ranks as a major scandal. But this tangled tale of how an Alaskan tribal company ended up in a South American tropical forest sheds an illuminating spotlight on the often-secretive world of federal contracting, an area of government rife with abuse and poor oversight. It is a story that involves Bolivian police, Balkan nationals, a no-bid contract, a senator whose office has been contacted by the FBI, emergency military rations and a helping hand from the biggest private contractor in Iraq -- a recently spun-off division of Halliburton, the Fortune 200 company once run by Vice President Dick Cheney. It is also a story that squarely addresses one of the principal concerns of lawmakers looking to reform federal contracting: the ability of Alaska native companies to get no-bid government contracts of any value. During the Bush administration those contracts have grown fivefold and now probably top $1 billion.

The so-called Alaska Native Corporation privilege came into effect in 1986 at the urging of Republican Sen. Ted Stevens of Alaska, the powerful former chairman of the Appropriations Committee, who recently announced that he has been asked for documents in a widening FBI investigation of political corruption in his home state. Stevens pushed through a law that exempted Alaska native companies from many of the limitations that apply to other federal minority-preference programs. Unlike other small minority businesses, Alaskan firms can get "small business" preferences even if they are owned by multibillion-dollar parent companies and employ no native Alaskans. One government contracting official recently told congressional investigators that the program amounted to an "open checkbook" given that there are no limits on the size of the awards.

"It always costs more money," another former Bush administration contracting official told Salon, noting the lack of competition. But the official held out little hope of reining in the program, given the power of Alaska's congressional delegation. "Senator Stevens still has a stranglehold on this stuff," the official said.

In the meantime, the Alaska native program has been exploding. In 1996, Stevens pushed through changes in the program that made the application process easier, and by 1999 Alaskan tribes had figured out how to take advantage. According to the Government Accountability Office, the value of no-bid contracts to Alaska native companies has grown from $180 million in 2000 to $876 million in 2004, the most recent year for which data is available. Native tribes now regularly win competitive and no-bid contracts across government, supporting bases for the Army, doing security upgrades for the State Department, supporting technology for NASA, and operating detention facilities for the Department of Homeland Security. After the invasion of Iraq, a representative of one Alaska native tribe boasted to the Los Angeles Times of working closely with Stevens to ensure that it would be able to get a piece of the reconstruction pie through no-bid contracts.

Critics have long complained that this exemption invites abuse by ignoring the most basic taxpayer protection in contracting: an open marketplace. "Their preference has been transformed into a huge procurement loophole," announced Rep. Henry Waxman, D-Calif., who chairs the House Oversight Committee, in a recent think-tank speech. The exemption has also been exploited by multibillion-dollar companies, like Halliburton's former subsidiary KBR, which partner with the native tribes to win lucrative business. As Waxman put it, "Much of the work has been done by non-native companies working as subcontractors."

In a GAO report last year, investigators uncovered various problems with the Alaska native contracting program, including lax oversight, confusion over the rules, and uncertain monitoring of costs. Investigators reported that contracting officers often use the Alaska native sole-source contracts simply because they are "easy and expedient." In one case at the State Department, an Alaskan firm received a sole-source construction award even though its first proposal came in at nearly twice as much as the government's initial cost estimate. In another case, non-native executives at an Alaskan firm personally pocketed 44 percent of profits from their contracts, apparently evading the goal of the program, which is to help impoverished tribal members in Alaska. State Department officials also told investigators that they suspected an unidentified Alaska native company was working as a "front" for a large non-native business.

The Olgoonik Corp. is a relatively recent entry into the federal contracting game. It is a village-owned firm based in Wainwright, a tiny community on Alaska's remote northern Arctic Ocean coast. It listed 412 shareholders in 2003, many of whom are subsistence hunters of seal, walrus, caribou and whale. For most of its history, the company's main function has been operating the local general store, the gas station, a restaurant and the town hotel, as well as maintaining local sewer services and doing other nearby construction, according to a recent report for the U.S. Interior Department. But in 1999, the corporation established several for-profit subsidiaries, which have since won hundreds of millions of dollars in federal contracts around the world. In several of these projects, Olgoonik has partnered with KBR, which was a subsidiary of Halliburton until it was spun off in April 2007. One Olgoonik subsidiary, Kuk Construction, has long maintained a partnership with KBR worth at least $125 million to provide construction services to three Alaskan Army bases. The same subsidiary has a $145 million contract with the State Department to do security upgrades with KBR at foreign embassies. A court filing in 2006 revealed that KBR had been the proposed subcontractor in a 2004 effort by Olgoonik Management Services to provide operations and maintenance support for the Army in Fort Carson, Colo.

Next page: About a month after their arrival, they were greeted by Bolivian police at their office and escorted away