Special Report: In Pentagon deal with Russians, big profit for tiny Florida firm

Tue Nov 18, 2014 3:20pm EST
 
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By Brian Grow, Stephen Grey and Roman Anin

ATLANTA/MOSCOW (Reuters) - For months, a powerful U.S. senator has been pushing for details of a murky deal under which a Russian manufacturer supplies the rocket engines used to launch America’s spy satellites into space.

At issue: how much the U.S. Air Force pays for the engines, how much the Russians receive, and whether members of the elite in President Vladimir Putin’s Russia are secretly profiting by inflating the price.

Now, documents uncovered by Reuters provide some answers. A tiny Florida-based company, acting as a middleman in the deal, is marking up the price by millions of dollars per engine.

That five-person company, RD Amross, is a joint venture of Russian engine maker NPO Energomash and a U.S. partner, aerospace giant United Technologies. According to internal company documents that lay out the contract, Amross stands to collect $93 million in cost mark-ups under its current multi-year deal to supply the RD-180 rocket engine.

Those charges are being added to the program despite a 2011 Pentagon audit that contested a similar, earlier contract with Amross. That deal would have allowed Amross to receive about $80 million in “profit” mark-ups and overhead expenses on RD-180 engines, government documents show.

The confidential report of the 2011 audit described the mark-ups and additional charges as improper under U.S. contracting law. Amross, the auditors concluded, was a middleman that did “no or negligible” work. The audit characterized the $80 million in added costs as “unallowable excessive pass-through charges.”

A spokesman for RD Amross told Reuters that the company resolved the dispute by reducing its charges under the first contract. Neither Amross nor the Pentagon would disclose the dollar amount of the price cut.

But the documents indicate that Amross later managed to make up for the concessions. In the current deal, Amross is charging the same average total price per engine - $23.4 million – that was proposed in the initial contract rejected by the Pentagon auditors.   Continued...

 
People watch as a United Launch Alliance Atlas V rocket, carrying a classified payload from the U.S. government's National Reconnaissance Office, lifts-off at the Vandenberg Air Force Base, California, in this December 5, 2013 file photo.      REUTERS/Gene Blevins/Files