The company seeking to build a security training school outside Carthage is under federal investigation.
Acting on a complaint from the U.S. Air Force, the Pentagon suspended Custer Battles from bidding on government contracts Sept. 30.
A report in The New York Times cited a memorandum filed in connection with a whistle-blower lawsuit that alleges a pattern of fraudulent billing practices.
Documents unsealed by the Justice Department say two former managers of Custer Battles, William Baldwin and Robert Isaakson, brought a civil suit under the federal whistle-blower act charging the company with fraud.
The Pentagon has held up a final $10 million in payments on a $21 million contract pending results of the investigation.
The company has called the charges baseless, characterizing the complaint as the work of "a competitor and a disgruntled employee."
Million of dollars in rewards could go to the two if their charges hold up.
Custer Battles, a security firm founded by Army veterans Scott Custer and Michael Battles, started operations in Afghanistan following the 2001 fall of Kabul. They won a $16.5 million contract from occupation authorities to provide security for the Baghdad airport in June 2003, and business really took off.
The investigation will not affect Custer Battles' plans in Moore County, according to Jack Donovan, director of training. A proposed Tarheel Security Training Center is to be built on 222.43 acres in Deep River township.
A hearing on the fraud accusations has yet to be scheduled.
"It has not been cleared up," Donovan said.
At the same time, the company has 700 employees doing dangerous work all around the globe, he said.
"Custer Battles is doing great work in Qatar, in Abu Dhabi, in Kuwait," Donovan said. "We are heavily involved in Iraq. Sadly, we had two employees killed there last week in an ambush."
It was the same kind of attack that has taken so many lives of U.S. Forces there: an improvised explosive device, or IED, detonates as a convoy is passing.
"Usually an IED starts the ambush," Donovan said. "There's a spotter who says, 'Here come the Americans.' Boom! Hits the IED, gets the two people killed, a fire fight ensues, the ambush and so forth. We had another ambush the other night."
Vehicles are armored, at least on their sides, but that protection has its own costs.
"One of the things that you run into, if you remember the problems with Humvees a few years ago, is gross weight," he said. "In a 120-degree environment, the cooling system can't keep up with the gain. You can't drive fast. And, guess what you have to do if you get in a situation you need to get out of? You need to drive fast."
Battling the Suspension
In the meantime, Custer Battles battles the suspension.
"We continue to do great work worldwide, but we are under a temporary suspension," he said. "What that means is - actually, the term is 'indefinite' - pending a hearing. Actually, we are flabbergasted, dismayed, embarrassed. Very, very upset.
"You don't receive a letter saying, 'you are hereby suspended.' You have to go to a Web site and pull from it. One of our employees who is in our office of corporate integrity told us to go to that Web site and look up Custer Battles."
That site is the Excluded Parties Listing System (www.epls.gov) and lists Custer Battles with a "Code B" exclusion.
According to the agency, such a suspension is pending "completion of investigation or legal proceedings ... based on (a) an indictment for, or adequate evidence of, the commission of fraud, antitrust violations, embezzlement, theft, forgery, bribery, false statements, or other offenses indicating a lack of business integrity; or (b) adequate evidence of any other cause of a serious and compelling nature."
EPLS stresses that the suspension is a temporary action.
Donovan was surprised that a complaint from the Air Force caused the bidding suspension.
"We have never entered into any contract, or competed for contracts, with the Air Force," he said. "A former subcontractor of ours and a partner of his, who is a former employee of Custer Battles, lodged a complaint with the Air Force. I don't know why they went to the Air Force. I could guess, but it is not smart on my part to do projections."
Donovan will leave it to the public to guess, adding that nobody at the company was contacted prior to the suspension.
"The Air Force decided to conduct an investigation," he said. "They never spoke to anyone at Custer Battles about the case. Again, this is bizarre. Normally, when you investigate something, to get all the facts you call all the parties.
"You don't see this happening to large defense contractors. Do you think a large corporation could stand by, even for 24 hours? Their reputation would be tarnished beyond repair. We are really, really upset about this. We responded immediately to supply all the facts. The Air Force has indicated that they received all that paperwork, and will schedule a hearing. We are still waiting for that to happen."
Custer Battles will come out on top, Donovan said.
"We are quite confident that we will be exonerated," he said. "We will then expect the Air Force to acknowledge publicly that we were not in violation of anything, and to regain the great reputation the company had."
Meanwhile, bidding suspension is taking a toll inside the company as the head office waits for an opportunity to make its case in a fair hearing.
"We can't bid on any contracts until this is cleared up," he said. "We are waiting for the phone call any second, but we are at the mercy of the Air Force in this case."
At first, Iraq was in a state of utter turmoil where contracts were concerned, according to Donovan.
"When it first started, there were no controls on contractors," he said. "I know a retired U.S. Army three-star general who went over there to work for our ambassador. He sat down at his desk in his office in the palace. He opened the bottom right hand drawer, and there was $7,000 just sitting there. Money was all over the place."
He acknowledged errors took place, but contends they were nothing more than mistakes in the heat of combat zone operation.
"Did we make mistakes? Sure we did, but not germane to this lawsuit," he said. "We, like every other company big and small, were under the microscope of Defense Contracting Agency, DCA. They investigated us. We provided all the documents they wanted. We were completely exonerated."
The Carthage training center will be set up as a completely separate entity, though wholly owned by the parent company. It will have its own set of books and its own audit trail.
"I started as a private, retired as a colonel," Donovan said. "I've got three children. I was called back to service by our country following 9/11 to start the federal air marshals program. I am not the kind of person who is going to associate my name with any company that is less than reputable. I don't have to work. I want to work, and I believe in this project.
"I believe in Scott Custer. He was one of my best soldiers. I got him a commission, and he did a great job as a commissioned officer. If I didn't believe in him, I wouldn't associate myself with him."
Donovan relies on his faith and trust in a man he once commanded.
"I have total confidence in Scott Custer," he said.