Investigators say a Coos Bay family made millions selling the military defective vehicle and aircraft parts
Two generations of a longtime family business here are under federal investigation for allegedly selling thousands of defective, knock-off parts to the U.S. military — including a critical helicopter part Army mechanics call “the Jesus Nut” because it secures the main rotor to the aircraft.
Kustom Products Inc. and its predecessor companies landed more than $31 million in Defense Department contracts between 2005 and 2009, court records show.
Company president Harold Ray Bettencourt, his ex-wife and the couple’s four adult sons paid themselves nearly $3.7 million between June 2007 and December 2009 from mark-ups of 22 percent to 3,745 percent on their military contracts, according to court documents. A Defense Department investigation allegedly turned up their flawed, look-alike parts as far away as Kuwait.
No criminal charges have been filed against family members, but a spokeswoman for the U.S. Attorney’s Office in Oregon confirmed that an investigation is continuing.
Defense Department special agent James McMaken alleged that owners and employees of KPI and a sister company, Southern Oregon Sterling Parts and Service Inc., “routinely and systematically engaged in a scheme to defraud the United States by providing nonconforming substitute parts and supplies to the (Defense Department)
And Bo Bettencourt told investigators that KPI’s survival depended on providing knock-off parts “like everyone else” in the defense contracting business, the agent wrote.
According to the affidavit, KPI and Sterling won contracts using a Pentagon computer program known as PACE, which automatically awards contracts of $25,000 or less based solely on the lowest bid submitted.
The Bettencourts were low-balling their competition, he alleged, then sending photos of the authentic parts to a Texas company they hired to “reverse engineer” replicas.
Here’s an example from the affidavit of how the scheme allegedly worked: KPI in April 2008 won a contract to supply 675 of the locking nuts at $20.14 each, for a total payment of $13,595. Instead of shipping parts made by a manufacturer specified in the contract, however, KPI ordered 675 facsimiles from Coloc at $11 each — giving them an 83 percent markup on that contract.
When the Defense Department began scrutinizing other KPI and Sterling military contracts, it found 83 different product deficiency reports against the Coos Bay company, McMaken wrote. The defective parts reportedly included generators, alternators, filters and safety relief valves for light armored vehicles, medium tactical vehicles and Humvees.
At one point, the Bettencourts allegedly delivered a vehicle frame with a fake “Freightliner” part number sticker affixed to a look-alike frame, he said. But Freightliner stamps its parts numbers into the metal frame during the manufacturing process, he noted.
This sounds a bit like a story I was told not too long ago about a requisition for some parts (I won't say much more than that here). The higher bidder (who lost the award) inspected the parts when they arrived at the government yard and noticed that the stamped serial numbers had been ground off. Further inspection suggested that the parts tendered, and accepted by the government, were of a different standard than the solicitation required, which will likely lead to a failure of the part much sooner than expected.
From all appearances, I was told, the government did not seem to care to verify the discrepancy, and the parts were quickly incorporated into the project before the higher bidder was able to examine the parts in more detail.
Now in a case like this, certainly the contractor is at fault if materials are delivered which do not conform to the award. But the government is complicit by failing to check the product delivered against the bid specifications.
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