‘Fundamentally Flawed’
Supreme was further said to be overpaid $98.4 million from 2005 to 2008 for transportation costs, in part because reimbursement rates “were significantly higher than the rates needed to reimburse the vendor for costs and associated profits,” the report said.
The audit disclosed that DLA personnel overseeing the Supreme contracts failed to prevent overpayments and potentially incorrect charges.
In March 2012, the DLA began recouping $21.8 million per month through administrative offsets, said Matthew Beebe, the agency’s deputy director for acquisition, in a hearing before the subcommittee in April.
Former Pentagon Inspector Heddell said that the original Supreme contract was “an example of just how bad it can get.” The contract “wasn’t well-designed” or “well-thought out,” he said at a hearing before the subcommittee in December 2011.
In response, Schuster told the subcommittee that the Pentagon’s audits of Supreme were “fundamentally flawed.”
As of Sept. 1, the DLA had recouped more than $390 million, more than half of the sum it says were overpayments made to Supreme, according to agency spokeswoman Mimi Schirmacher.
“The discrepancy in the amount Supreme and DLA claim to be owed is based on a contract modification regarding delivery to additional customer locations,” Schirmacher said in an e-mail. “DLA and Supreme utilized different methodologies to calculate the appropriate price for transportation to these additional locations.”
In a report filed in July, the Pentagon concluded that the agency still fails to ensure that Supreme is billed the correct amount and that it hasn’t established controls to manage refunds from overpayments.
“This is a case study for what not to do in government contracting,” Scott Amey, general counsel for the Washington- based Project on Government Oversight, said by phone.