Pentagon opens criminal probe into helicopter deal

The Pentagon, through the DCIS has opened a criminal investigation into the Army unit that awarded tens of millions in contracts to Russian and US firms for maintenance on Russian built helicopters. The investigation is looking into improper payments made to the companies, as well as possible personnel connections between Army personnel and those contractors.

The Pentagon is buying the helicopters for the Afghan National Army, through Rosoboronexport, which is not being investigated. They are also investigating the acquisition costs, which have soared from $10.5M per unit in 2009, to $19M today.

The problem appears to lie between the Army Non-Standard Rotary Wing Aircraft office in Huntsville, and Avia Baltika and St Petersburg Aircraft Repair Co, or SPARC. In 2012, there was an audit of both, in which neither company would allow Army QA inspectors access to their overhaul facility. Both apparently failed to identify unsanctioned parts that needed replacement, overcharged by $16.4M, and took 12 to 20 months longer than they were supposed to.

The IG report recommended that both companies be suspended or banned from receiving any new contracts from the US government.

The NSRWA office was formed in January 2010 to oversee all Pentagon contracts related to helicopters not normally in U.S. inventories, including the workhorse Russian Mi-17. That aircraft is widely used by the Afghan, Iraqi and Pakistani militaries, which have close ties with the U.S. armed forces. The unit also manages the current Pentagon contracts to buy new Mi-17s through Rosoboronexport.

NSRWA was led from its inception by Col. Norbert E. Vergez, an Army aviation expert who retired in November 2012. He now works as a senior vice president at Patriarch Partners, an $8 billion New York-based private equity firm run by financier Lynn Tilton. Patriarch owns MD Helicopters, a military and civilian helicopter maker based in Mesa, Arizona.

At Patriarch, Vergez oversees MD Helicopters' contract bidding with the U.S. military and other prospective buyers, according to documents reviewed by Reuters and people familiar with the matter. David Goldin, a spokesman for Patriarch, said Vergez doesn't handle military contracts and oversees only commercial matters.

Pentagon records indicate that in June 2011, Vergez wrote a letter to a Russian military official, using Department of the Army letterhead, to discuss Science and Engineering Services and its Russian subcontractors.

The letter concerned a $30 million Pentagon contract awarded to Science and Engineering Services to overhaul five Mi-17 helicopters for Pakistan. The project was being blocked by Russian officials. They had determined that Avia Baltika and SPARC, the subcontractors, lacked authorization to work on military aircraft.

In the letter, dated June 6, 2011, Vergez wrote that he would order more funding for "engineering services" to be added to a separate Pentagon deal to buy 21 new Mi-17 helicopters for Afghanistan from state-owned Rosoboronexport - provided that the Russians unfreeze the Pakistani overhaul work being led by Science and Engineering Services.

Investigators are examining the offer because they believe it may have circumvented normal contracting procedures. To complete the arrangement outlined in the letter, said a person familiar with the probe, Vergez would have had to tap funds earmarked for a deal involving Afghanistan to help out contractors in a separate deal for Pakistan. A program manager in Vergez's position wouldn't have authority to take such a step, which would effectively change the terms of competitively bid contracts after the fact, according to a person familiar with the matter.

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