Losing bidders file protests in Defense deal

Times Staff Writer

A Defense Department medical services contract worth up to $790 million was awarded last month to a Wisconsin-based company three months after it hired a former Bush administration appointee who had supervised military health programs at the Pentagon for the last six years.

William Winkenwerder Jr., assistant secretary of Defense for health affairs from 2001 until April, joined Logistics Health Inc. as a director and consultant in June. The firm beat out two other bidders with proposals that ranged from $80 million to $100 million less, records show. Under the new contract, Logistics Health will provide immunizations and physical and dental exams for reservists and National Guard members.

Logistics Health of LaCrosse, Wis., is headed by another ex-official of the Bush administration -- former Secretary of Health and Human Services Tommy Thompson.


“They stacked the deck,” said Fran Lessans, president of Passport Health, one of the losing bidders. Her Baltimore-based firm lost despite a bid projected over five years to cost nearly $100 million less than Logistics Health’s winning proposal.

“It was wired. There is no doubt in my mind,” Lessans said of the Defense procurement process.

Two other firms involved in the bidding have filed formal protests with the Government Accountability Office. A draft copy of one protest letter, reviewed by The Times, cited Winkenwerder’s role and complained that the winning bidder may have “gained unequal access to information not available to other competitors” by hiring the former Pentagon official.

“This creates an organizational conflict of interest and potentially constitutes prohibited contact,” the draft letter said.

Winkenwerder called such allegations inaccurate and untruthful. In e-mail responses to The Times, he said he had nothing to do with the procurement process or the selection of Logistics Health. He also said he had not begun contacts with Logistics officials about the directorship and consulting job until after he had resigned his Defense Department post.

His role at Logistics Health is to provide advice, he said, “on a variety of issues that are of concern and priority to the company. Government rules do not prohibit such advice in any way.”


The rules bar him from contacting his former Pentagon colleagues on Logistics’ behalf, “and I have followed those rules scrupulously. Further I support such rules and place a high importance on strict ethical behavior in all of my conduct.”

Diana Henry, a spokeswoman for Logistics Health, said in a written statement that the company “conducts all of its business activities in a highly ethical and professional manner.”

The contract, awarded in September, supports the Defense Department’s Reserve Health Readiness Program. In prepared remarks for a subcommittee of the House Armed Services Committee two years ago, Winkenwerder said the program’s goal was “to identify and proactively assist service members in getting needed support for deployment-related concerns.” Besides routine exams, the program will provide full medical assessments to reservists and Guard members returning from Iraq and Afghanistan.

Logistics Health will be paid an estimated $151 million for the first year of a contract that can be renewed annually and extended up to five years at a total cost of about $790 million.

In other letters of protest filed with the GAO, officials of rival firms also charged that Logistics won the pact despite questions raised about its performance under a previous agreement with the Department of Health and Human Services. That pact, originally awarded in 2001, only applied to the Army, while the new one includes the Navy, Air Force and Marines.

Kenneth Moskowitz, an attorney for the Pennsylvania-based United States Military Dental Corp., said in an Oct. 12 letter that Logistics’ prior performance and practices under the Health and Human Services contract “put reservists and National Guardsmen at possible undue risk.”


He told the GAO that “no one was assigned to specifically monitor the level of care” received by military personnel and that the company operated with “a built-in incentive to lower provider cost for added profit.” The Pennsylvania company was a subcontractor for Comprehensive Health Services of Florida, one of the failed bidders.

A spokesman for the Defense Department, citing the pending protests, declined to respond to a series of detailed questions about the contract and the selection process.

Records reviewed by The Times show that the Logistics Health bid also survived a major last-minute change when partner QTC Management abruptly withdrew days before the contract was awarded.

QTC Chairman Anthony J. Principi, another former Bush appointee, was secretary of Veterans Affairs.

The GAO has until early January to act on the protests.

The Defense Department gave initial notice of its intent to put the newly expanded program out to bid in October 2006.

Winkenwerder resigned from his Pentagon post April 16, and his appointment to the Logistics board was announced May 31. It became effective the next day. In announcing Winkenwerder’s appointment, Thompson said: “He brings with him a wealth of knowledge and also shares LHI’s commitment of helping military members receive the healthcare and support they deserve. He is a tremendous addition to our board of directors.”


The formal notice of the bidding process was issued June 12. Bids were due July 26. On Sept. 10, QTC formally withdrew from the Logistics proposal. And on Sept. 25, the contract was awarded to Logistics.