Feeding off the Pentagon

How did a former Bush official win an $800 million Department of Defense contract for his healthcare firm? That's what government watchdogs want to know.

By Mark Benjamin

Read more: Politics, Pentagon, News, Tommy Thompson , Iraq War, Walter Reed Army Medical Center, Mark Benjamin

Mignon Khargie/Salon

Dec. 4, 2007 | WASHINGTON -- In April 2007, William Winkenwerder Jr. retired from his position as assistant secretary for health affairs at the Department of Defense, where he had been in charge of all military healthcare. On June 1, he went to work for a Wisconsin-based private contractor named Logistics Health Inc., which hired him to serve on its board of directors and "advise and counsel LHI on business development," according to a company press release. It was a hire that seems to have paid quick dividends.

On June 13, 2007, the Department of Defense began accepting bids for a contract to give soldiers medical and dental exams before they head off to war. Logistics Health was among the companies bidding on the contract, which was worth hundreds of millions of dollars over four years. Before he left the DOD, in addition to running military healthcare, Winkenwerder had also been in charge of the office that wrote the contract.

On Sept. 25, Logistics Health won the contract despite bidding $800 million, meaning it was not the low bidder. At least one other company bid $100 million less.

After objections by competing companies, the contract has now been "stayed," or put on hold, while the Government Accountability Office, the investigative arm of Congress, evaluates those complaints. At least one firm alleging unfair bidding practices has also asked congressional watchdog Rep. Henry Waxman, D-Calif., to investigate. But the contract may still be awarded to Logistics Health; the GAO will issue a decision by Jan. 14. The contract, which at one time was also going to benefit a second firm with its own revolving door to the federal government, exemplifies the culture of cronyism in privatized military healthcare. Military healthcare is a lucrative wartime bazaar for private contractors that is largely free of oversight -- and of Halliburton- or Blackwater-size headlines.

You might remember William Winkenwerder from earlier this year. While still at the Pentagon and responsible for military healthcare, he expressed shock at reports in the Washington Post on neglect of outpatients at Walter Reed Army Medical Center, even though Salon had reported the same neglect two years earlier. "This news caught me -- as it did many other people -- completely by surprise," he said at a Feb. 21 press conference.

On paper, the process of awarding the contract for soldiers' medical and dental exams was handled through the U.S. Army Medical Research Acquisition Activity, a contracting shop at Fort Detrick in Frederick, Md. Winkenwerder didn't control that office when he was at the Pentagon.

But as assistant secretary of defense for healthcare, Winkenwerder was also director of a DOD office called TRICARE Management Activity. When the government contracts out for services, the details of the services it wants from a bidder are contained in a document called the "statement of work." In the case of the medical and dental exam contract, the "statement of work" was not written at Fort Detrick, where it belonged officially, but by Winkenwerder's office, TRICARE Management Activity. "We are just the contracting office," explained Christopher Sherman, a civilian official at Fort Detrick. "That contract is managed by the TRICARE Management Activity ... We have them put together the statements of work and the solicitations." Sherman said Winkenwerder's office had been preparing the contract since late 2006.

Dina Rasor, author of "Betraying Our Troops: The Destructive Results of Privatizing War," said it was likely that Winkenwerder's office configured the statement of work in such a way that a contract would be awarded to a favored company over its competitors. Though she had not reviewed the statement of work in question, Rasor said manipulating these documents is a common abuse in government contracting. "They take something unique about the company and they put that in the statement of work or [add] requirements that the other companies [can't meet]," said Rasor. "It is the kind of thing that is hard to put your finger on. These people have become very sophisticated at doing this."

The competing companies that protested the Logistics Health deal have taken note of Winkenwerder's role. "I think it is a conflict scenario," said Charles Roché, chairman of United States Military Dental Service Corp. He expressed the alleged conflict of interest in a rhetorical question. "You end up being employed by the very people that you are helping put together the deal for?"

Roché and other contractors have also seized on what they say is an additional anomaly with the contract. When Logistics Health put together its bid, it partnered with other firms, including QTC Management Inc., another contractor that is the largest private provider of government-outsourced disability examination services in the country. The company has raked in hundreds of millions through contracts with the Department of Veterans Affairs. Anthony Principi, the former secretary of the VA, is chairman of the board. And President Bush recently nominated QTC Management chief operating officer James Peake to be the next VA secretary. (Peake was also the former Army surgeon general through 2004.) His confirmation hearing is slated for Dec. 5.

Next page: "How can you tell me you are able to make a deal when half of your business fell apart?"