Black Hawk Down?
Photo via the U.S. Army.
How a Crooked Contractor Almost Got Away
POGO’s New Evidence of Unprosecuted Criminal Violations
A Case Study of the Government’s Use of Debarment
By NICK SCHWELLENBACH
Editor's note: This post was updated on May 1, 2012.
A manufacturer of key safety and control components for U.S. Army helicopters supplied defective, failure-prone parts different than the ones the Army thought it was buying. But even after a Department of Defense (DoD) criminal investigation concluded the company had committed “fraud” in its final report of investigation, the Army took a year to officially make a move to ban the company’s Florida-based owners from doing business with the U.S. government, POGO has learned. Even before that, the Army resisted strong recommendations from military investigators to take action more quickly, meaning millions of taxpayer dollars kept flowing to these individuals.
The company's owners strongly deny the investigators' and the Army's conclusions. They are fighting the proposed debarment.
In mid-March, over six years after the investigation began, the CEO of the company and her husband, who was a co-owner, were finally proposed for debarment. This happened weeks after POGO first queried the Army about the matter. However, the delay between when DoD investigators began pushing for action and when that action belatedly occurred may have come at a cost to taxpayers. In the interim, the company’s owners managed to score millions of dollars worth of new government contracts, in part by creating a new corporate entity, then managed to bag a last-minute deal from the Department of Veterans Affairs before the Army proposed banning them from ever bidding on government contracts again.
The long period that elapsed between when the government learned of the company’s violations and when it took action illustrates the hesitance many U.S. agencies have in using a powerful set of tools available to protect taxpayer interests: suspension and debarment. Debarment is when the government blocks a company and/or individuals from winning new contracts. Suspension is a similar, but more temporary measure that occurs when the government has good reason to believe a company may have violated a law, regulation, or contract provision. Government reports last year by the Government Accountability Office (GAO), Congress’s investigative arm; the Pentagon’s internal watchdog; and the Commission on Wartime Contracting all urged government agencies to suspend and debar contractors more often.
The White House also issued a memo last November underscoring the importance of suspension and debarment. “The suspension and debarment remedy is a powerful tool for protecting taxpayer resources and the integrity of these processes from those contractors and recipients who are ‘non-responsible,’” stated the memo. The memo defined non-responsible firms as those “who lack business integrity because they have engaged in dishonest or illegal conduct or are otherwise unable to satisfactorily perform their responsibilities.”
“For too long, too many Federal agencies have failed to adequately use the suspension and debarment tools that are placed at their disposal,” the White House memo declared.
January Dennison, CEO of TRC (photo via The Ledger).
A Case Study in Incompetence
The story of the government’s handling of this company, called Technology Research Consultants, Inc. or TRC, appears to be a case study in how the government fails to adequately use suspension and debarment, thereby failing to protect taxpayers.
The Army acknowledged TRC had sold it thousands of defective parts (also known as “non-conforming parts”) worth millions of dollars for Sikorsky-built Black Hawk and Boeing-made Chinook helicopters, which are the workhorses of Army aviation. The defective parts were vertical displacement gyroscopes, which “give the pilot a visual indication of the helicopter orientation” and help assist “the pilot’s general control of the aircraft,” according to an Army memo. An Army manual on these flight control systems in Black Hawks states that they “enhance the stability and handling qualities of the helicopter” and are especially important because “helicopters are not as stable as fixed-wing aircraft.”
“The Army’s investigation revealed that TRC used parts in the production of the gyroscopes that differed from those used in the first article testing and that TRC failed to seek approval of the changes from the Government,” the Army said in a statement to POGO. “The investigation noted that the gyroscopes failed due to overall poor manufacturing quality,” the Army added.
Criminal investigators with the Defense Criminal Investigative Service (DCIS) and Army Criminal Investigation Command (CID) went further and concluded that TRC deliberately changed the design of the gyroscopes in order to cut costs—savings never passed on to the Army—and thus to increase TRC's profit.
The design changes also increased the failure rate of the gyros. The average TRC gyroscope failed at approximately 200 hours, yet the contract requirement was for 2,000 hours average time before failure. “The data speaks for itself and is worse than I suspected,” an Army avionics expert who examined TRC gyros emailed criminal investigators in June 2007.
The year before, in July 2006, the Army conducted an inspection of 25 of TRC’s failed gyros. “The inspection showed that a majority of the failures were caused by a defective ceramic switch,” according to a timeline created by investigators.
In August 2007, a “Rapid Response” contract was awarded to another company to figure out how to handle the gyro failures; “typical gyro failures,” an Army memo notes, included “indicating erroneous aircraft orientation.”
But it wasn’t until November 2009 that the first 700 of the 2,802 gyros bought by the Army were officially repaired. The bulk of the remaining gyros were repaired later. The repairs dealt with “workmanship problems” and also required replacing a wide variety of parts within the gyroscopes. “As a matter of caution, essentially all the delivered TRC-built CN-1314B/A and CN-811E/A gyros were re-worked,” according to an Army memo (the two gyros are essentially the same with the former used on Black Hawks and the latter on Chinooks).
The Army said that although TRC’s defective gyros posed a safety risk and it was worth spending sums of money to repair virtually all of the nearly 3,000 of them in helicopters—which took several years—the Army did not inform helicopter crews because they said risk was not significant.
According to an Army statement, the Army “evaluated the issue and determined that there was no safety hazard that would necessitate notice to the field based in part on the dual gyroscopes in the aircraft and extensive pilot training. Additionally, defective gyroscopes have been removed from aircraft.”
Black Hawk and Chinook both have two gyros each “to provide safety redundancy,” states an Army memo, and “the failure of both gyros, simultaneously, while in flight is provided as the most extreme case of potential danger to the Warfighter.”
Gyros are used to help pilots read instruments like this one, which displays a helicopter's attitude (photo via as737700).
A Past Helo Crash Caused by One Gyro Failure?
Even the less extreme case of one failed gyro might contribute to higher, perhaps even fatal, risks. For instance, a 1999 crash of a civilian Sikorsky-built helicopter (derived from the Black Hawk) involved an alleged failure of only one of its vertical gyroscopes. To be clear, this gyroscope was not manufactured by TRC.
“I think my gyro just quit,” stated the helicopter’s co-pilot, Donald Greene, who was flying the aircraft, just seconds before crashing into a wooded hillside in Jackson, Kentucky, according to an accident investigation report by federal crash investigators at the National Transportation Safety Board (NTSB). The crash killed four, including the co-pilot and pilot Ernest Jones. The helicopter, a Sikosky S-76, owned by Petroleum Helicopters, Inc., was flying at night in heavy fog. The pilot and co-pilot were “forced to rely almost exclusively on the helicopter’s navigational instruments” because “visibility was approximately one-quarter to one-eighth of a mile.”
Although the NTSB did not blame the gyro for the crash (it blamed the pilot’s supervision of the co-pilot), a jury found in favor of the co-pilot’s wife, who claimed that a defective gyro was behind the crash. The jury awarded the wife $1.276 million for her claim that the manufacturer of the gyroscope that allegedly failed was liable for the death of her husband because the gyro was defectively manufactured. But, on appeal, the manufacturer persuaded a higher court to reverse the jury’s decision and their award on the basis that there was insufficient evidence that there was a manufacturing defect. Furthermore, the company persuaded the appeals court that had the gyro failed, that the wife did not have enough proof to say it could be a possible reason for the crash.
Regardless, the facts do seem to suggest that the co-pilot may have been getting bad info from his instrument panel. The NTSB found discrepancy between what the instrument panel was telling the co-pilot and what the helicopter was actually doing in-flight, suggesting a gyroscope failure. NTSB observed that the helicopter’s instrument panel indicated that the helicopter was “pointing to a position between level flight and a 2-degree right roll.” Yet crash investigators also noted that between the “pattern of treetop leveling” caused by the crash “and pilot-in-command Jones’s last words, both indicated that, at impact, the helicopter was actually “in a left hand turn and descending,” according to a federal court summary of the facts of the case.
Douglas Herlihy, an expert witness for the co-pilot’s wife who sued the manufacturer of the gyro testified. According to the court summary of his statement, “it was more likely that a vertical gyroscope failure, rather than a failure of other instruments, was the cause of the crash.” Herlihy said, “the accident was a result of instrument confusion in the cockpit created by the loss of vertical gyro input to the flying pilot’s A.D.I. [Attitude Display Indicator] or gyro horizon.”
Millions in Contracts, Then a Quiet Exit
TRC had contracts worth nearly $17 million for gyroscopes from 2003 through 2007, according to an Army statement and a review of a government contracts database.
The former CEO and president of TRC is January L. Dennison and her husband, the CFO of TRC, is John D. Dennison. January Dennison received the 2006 Small Business Administration Florida business person of the year, during the same time period she was being investigated for defrauding the Army.
John Dennison first spoke to POGO over the phone on Tuesday morning and stated that investigators were wrong in their conclusions and said he would try to provide documentation in support of his arguments. In a subsequent call from POGO on Wednesday afternoon in an effort to get these supporting documents, Dennison said it was up to his lawyer. Dennison nor his lawyer sent any documents in time for publication. POGO first reached out to John Dennison with a voice mail left last Monday.
The Dennisons argue that they're simply the victims of overzealous investigators and a greedy tipster who initiated the investigation. Because he and his wife January "have no intention of continuing to do business with the Department of Defense," John Dennison said, "all this ends up being is a slap to my integrity."
John Dennison made several arguments for why the criminal investigators' conclusions were wrong. He stated that "it appears no one read the contract" and that TRC only had to produce gyros that got the job done in terms of performance, rather than having to meet technical specifications to a T.
However, one of the early contract modifications states that “TRC agrees to the change in designation for this item from commercial to noncommercial and the inclusion of the applicable clauses.” This means that the contractor was required to go through the rigors of government inspections and pass what is known as “first article testing”—but even this was a requirement before this contract modification. First article testing means a contractor has to provide whatever it intends to provide the government for testing—if the government approves of this item, the government is agreeing to buy identical versions of the item tested, including its components, unless changes are approved by the government.
The final report by the criminal investigators states that the “non-conforming components [in the gyros] were incorporated into production units manufactured after the” first article test.
Additionally, Dennison said the Army approved TRC's move to use different parts than used in the gyros they provided originally for testing and said initially that there was a second round of first article tests for a gyro with parts swapped out. Dennison said he could provide paperwork to back up this claim. In a second phone call, Dennison said the second “first article test” was actually a regularly-conducted “production test,” which he says is just as stringent. The contract and its modifications do not mention a second round of first article testing or that production tests suffice as new first article tests.
He defended the gyros TRC provided to the Army. “Our gyros were as reliable as anyone else’s,” John Dennison said in a phone call. “The investigator ramped up the reliability problem.”
When questioned about the higher failure rate the Army said plagued TRC gyros in violation of contractual requirements, he said “the Army cannot have it both ways.” He said if the reliability problems were as bad as the Army said, the Army should have grounded its helicopters. “But they didn’t do that,” Dennison said, “as far as I know, some [helicopters with the TRC gyros] are still in service.” As mentioned earlier, the Army contracted out work to other companies to repair TRC-manufactured gyros.
A bio for a 2008 National Defense Industry Association conference describes January Dennison as “a recognized business strategist throughout Department of Defense, Veterans Administration and Early Childcare Industries.” It describes TRC as having “well over 6000+ avionic modernization solutions flying on board Blackhawk, Chinook and Kiowa Rotary platforms supporting the United States Armed Forces,” and as a company that maintains “the gravesites of over 100,000 fallen Armed Service Veterans throughout the Southern Region” and runs “magical early learning child care centers.”
A January 2009 article by The Ledger, a local Florida paper, described the abrupt closing of Dennison’s TRC and child care centers as a “low-key exit.”
“It's disappointing,” The Ledger quoted Jane Patton, director of the Haines City Chamber of Commerce. “Not being on the inside, we don't know if the economy caused them to close their doors. I know they didn't renew their Chamber membership this year, so something was going on.”
What had been going on, but was not known publicly, was that a federal investigation into TRC had been underway for several years.
"TRC suffered from the investigation and filed for bankruptcy," John Dennison told POGO over the phone.
TRC’s Pattern of Questionable Conduct
A tip coming into the Department of Defense Office of Inspector General (DoD OIG) hotline in 2004 kicked off the probe into TRC and the Dennisons. The tipster asserted that TRC had falsified certificates that stated its gyroscopes were in compliance with contractual specifications and that TRC has switched out components in the gyros without receiving government approval. The caller was Patrick Torre, briefly an employee of January Dennison, and he also claimed TRC was illegally using copyrighted designs for gyros that he owned.
A 2011 Defense Criminal Investigative Service report reviewed by POGO details evidence and statements from numerous witnesses, including TRC employees, which concluded that TRC engaged in fraud, conspiracy, and witness tampering, and obstructed a federal audit and a criminal investigation, among other violations of law. TRC made millions of dollars based on illegal activities, according to the investigation, and sought to conceal its misconduct, the criminal investigators stated in their report.
In addition to concluding that TRC committed fraud by willingly supplying gyroscopes that did not conform to specifications, the investigation concluded that TRC used the blueprints and data rights of Patrick Torre without his permission, meaning it was manufacturing the gyroscopes illegally. TRC tried to cover up their use of Torre's blueprints and data rights by having his blueprints redrawn and replacing the blueprints’ distinctive markings with TRC’s own.
January Dennison said TRC obtained Torre's prints from two of Torre's former employees, who went on to work for TRC. These former employees admitted to stealing the prints from Torre and giving them to Dennison.
TRC also withheld information concerning gyro failures from the government by threatening employees with termination, according to an investigator’s interview with a TRC employee.
Gyros that TRC sold to the Army (photo via DCIS).
Tight Ties Between the Company and an Army Official?
Questionable actions taken by an official in the Army command that contracted with the Dennisons—called Communications-Electronics Command or CECOM—drew the attention of investigators.
According to an earlier Army investigation report on TRC from 2008, a CECOM official told investigators that CECOM “has a high regard for TRC and that TRC's owner,” January Dennison, has “a direct line to” a senior CECOM employee. The investigators wrote that when one CECOM contracting officer tried to learn more about problems at TRC, he was “chastised” by Lou Fornicola, the chief of CECOM’s aircraft programs branch, who told the contracting officer to cancel the visit.
When a CECOM employee later tried to inquire into the issues with gyros at TRC due to the problems being discovered, Fornicola tried to intervene and have all gyro manufacturers examined. These two issues led some to believe that Fornicola “was too close to TRC,” according to the investigative report, and an investigator asked Fornicola’s bosses to remove Fornicola from having “any interaction with TRC.” Fornicola was replaced.
The investigators interviewed Fornicola in March 2006. Fornicola “thought very highly of TRC” and January Dennison, according to the report and he also said he directed the award to TRC of a no-bid contract because, in part, “he did not see the need for full and open competition for a potential low production contract.” The Army awarded TRC a sole source contract in August 2005 for $4,998,998.73, less than two dollars underneath the $5 million small business threshold for evading competition. One TRC employee told a federal investigator that he found the no-bid contract “troubling, as it appears to be a directed contract thereby excluding competition.”
But, in an interview, Fornicola “denied any improper relations with TRC” and with Dennison relating to the gyroscope contracts, according to the investigative report.
Shortly afterward, Fornicola ended a 15-year career with CECOM. Fornicola’s LinkedIn profile states that he left CECOM in January 2007. POGO was not able to get comment from Fornicola in time for publication. A number listed for him has been disconnected.
Fornicola was not charged with any wrongdoing.
Update: Fornicola reached out to POGO after publication. He denied any wrongdoing. He added, via email, that "most of what was discussed about me was inaccurate, except for me not being found guilty of anything, which is ironic because I was never aware or told I was under investigation."
"I spent a 36 year carreer fighting against the status quo, corruption, and mismanagement," Fornicola said in an email. "Over those years I've probably made lots more enemies than friends."
He explained the urgency behind awarding the contracts to TRC. "When I took over the job as Branch Chief for Aircraft Programs Branch the Gyros were the number one backorder item in our Directorate; top 5 I believe within CECOM," Fornicola emailed. "I was directed by my leadership to take action to find additional sources of supply immediately."
"Both Small Business in Washington D.C. and the CECOM local office pushed TRC as a potential source of supply," he wrote. "Both the contract personnel and legal personnel were involved in all the details. Of course contracting for Small Business is usually much faster than the open traditional competition, which was appealing under the circumstances. Small Business has great potential, it also comes at some risk."
Fornicola took issue with criminal investigators' characterization of his actions and disputes whether he was the senior CECOM official referenced in the investigative report. "The article mentions a senior official at CECOM; that certainly couldn't be me, in the pecking order I was way below that pay grade," Fornicola wrote POGO. Furthermore, contradicting the investigative report, he said he "never chastised a contracting officer" and that he "never told anyone to cancel any visits" and that he "never intervened or attempted to obstruct any inquiry."
He did confirm that when he "was asked about TRC by investigators I told them that the folks at TRC were very good to work with, and I had thought they were doing as well as could be expected." He went on to write that "based on that conversation the investigators informed my supervisor that they felt I should have the gyro program removed from my branch. It was his decision to do so."
"I never denied any improper relations with TRC, because I was never asked that question; and I'm very glad I wasn't, because sometimes my Italian temper gets the best of me," Fornicola wrote POGO in an email. (End of update.)
Uneven Use of a Powerful Tool to Protect the Taxpayer
Non-responsible companies and individuals typically are barred from doing business with the government when there is a successful criminal prosecution or civil action taken against them. But a win in court is not required for debarment. In many cases, the dollars at stake may be too low or the evidence too weak to justify a prosecution or civil action, but known facts may be sufficient for a “fact-based debarment.” Whatever the case, a fact-based debarment was utilized with the Dennisons. The federal government’s contracting rules allow officials to suspend or debar a company for its “willful failure to perform in accordance with the terms of one or more contracts; or a history of failure to perform, or of unsatisfactory performance of, one or more contracts.” Evidence of a lack of business integrity or honesty is also grounds for action.
Last year, the Department of Defense Office of Inspector General (DoD OIG) issued a report on the DoD’s use of suspension and debarment. It found that the military services—the Air Force, Army, Marine Corps, and Navy—could issue more fact-based suspension and debarments than they do now.
One reason this is not happening as often as it should may be that contracting officers who directly know about contractors’ shortcomings are not communicating with the officials who can take action. According to the DoD OIG, “the Services’ contracting personnel stated that they had little to no involvement” with the suspension and debarment process (S&D). Specifically, at the Army, “most S&D cases originated from the Army Criminal Investigation Division, and they rarely received S&D cases directly from contracting personnel.”
This appears to be the case with TRC. A strong move towards debarment for TRC came during a meeting at Ft. Belvoir in March 2011 when the chief Army Material Command counsel learned about the findings of the criminal investigators, according to a person familiar with the meeting who requested anonymity because he is not authorized to speak about these matters.
However, contracting officers with the Army’s CECOM, which is within Army Material Command, had known about TRC’s defective gyros for years. Criminal investigators had asked CECOM to debar the company earlier—and that request went nowhere.
Even earlier, the criminal investigators had made CECOM aware of their findings in January 2007 as they interviewed witnesses and reviewed documents.
Exasperated by CECOM's lack of action, the criminal investigators went above CECOM's head to Army Material Command with their findings in March 2011. When the Army Material Command counsel learned of these findings he asked why a fact-based debarment had not occurred. He stated openly in the meeting that there was more than sufficient evidence to support a fact-based debarment. He directed that TRC be debarred immediately, according to the source.
Instead it took nearly a year.
The Army’s Arguments for Not Debarring TRC Sooner
The Army made a number of arguments for why it took so long to propose to debar the individuals involved in TRC’s fraud. For one, the Army has stated a proposed debarment did not occur more quickly because it was waiting for the Justice Department to make the first move. “Debarment actions are internal to the government and as such, the results of which will not be provided publicly until resolved,” the Army said in a statement. “The delay in any prior debarment actions was pending the decision by the U.S. Attorney's office regarding criminal prosecution.”
The U.S. Attorney’s office in Tampa, Florida was unable to comment on the reason for declining prosecution.
A source close to the investigation and familiar with why the U.S. Attorney declined to prosecute told POGO that CECOM kept shifting its story on how much it was harmed and whether TRC was in violation of its contract, despite the documentation and sworn statements from CECOM gathered by investigators that showed harm was caused and that TRC was in violation.
POGO also asked the Army whether it planned to seek refunds from TRC. Initially the Army said “this question assumes the U.S. Government was defrauded. That has not been demonstrated.” This despite the Army’s admission that the investigation found TRC provided defective parts that were modified without Army approval—a violation of TRC’s contract with the government. When questioned further, the Army stated that “the previous response refers to proof in a court of law that fraud occurred” rather than accepting as proof the conclusions of its own investigators.
However, as mentioned earlier, debarment does not require a successful prosecution or even the successful completion of an investigation. “Cause for a fact-based suspension or debarment can arise at any point during a contract or grant lifecycle and may be identified well before the final completion of an audit, investigation, or award close-out,” states a report by the Council of the Inspectors General on Integrity and Efficiency.
Yet another reason the Army said it had not previously taken action is TRC went out of business right around the same time criminal investigators began to zero in on its alleged fraud. “At this point, no action has been taken regarding the non-conforming parts, in part because TRC is no longer in business,” the Army stated, adding that “prior to completion of other investigations, TRC went out of business, therefore precluding contractual corrective action.”
However, investigators had made the Army’s CECOM aware of their findings when TRC was still in business.
POGO then asked the Army whether the government should have barred the individuals behind TRC’s fraud from doing business with the government in the future in case they start a new business with a different name.
The Army agreed that this move would protect taxpayers’ and the government’s interests. “It is correct to state that debarment protects the government's interest and that debarment would be considered against individuals if a company is defunct,” the Army stated in response to POGO’s question in February.
Indeed, criminal investigators noted that after TRC closed down in 2007/2008, January Dennison’s husband John D. Dennison was “continuing to solicit business pertaining to gyroscopes with CECOM through his company, American Procurement Distributors and Associates, LLC (APDA), Sevierville, TN.”
On March 13, 2012, just weeks after the Army answered POGO’s questions, the Army moved forward on a proposal to debar January and her husband John D. Dennison.
But the government’s dithering came at a price. According to a government contracts database, John Dennison’s company won nearly $9 million in contracts with the Department of Veterans Affairs (VA) between July 2008 and March of this year for landscaping services at cemeteries. TRC began winning similar VA contracts in 2004.
The last contract that John Dennison’s company won (worth $77,946) from the VA was on March 13—the same day a government database listed the Dennisons as getting a proposal for debarment. However, the government-wide notice of the debarment action was not posted online until the next day.
There were some things that seem to have gone right in the case of the Dennisons and TRC: criminal investigators did their job aggressively and the Army eventually stopped doing business with this company. However, what went wrong is both troubling and costly: for years, the government had information that it was dealing with bad actors, but did not use one of the most powerful tools to protect taxpayer dollars from continuing to flow.
Nick Schwellenbach is POGO's director of investigations.