Army Awarded AEY Contract After “Recommendation” From Firm’s Financial Backer

June 24, 2008 5:25 p.m.

When Army officials asked Ralph Merrill to provide a “performance evaluation” of arms dealer AEY, he gave the the firm a glowing review.

Well, of course did. He’s the company’s financial backer. And he’s also one of the three other men indicted last week along with AEY’s 22-year-old president, Efraim Diveroli.

“We have dealt with AEY Inc. for the last four years and have built an excellent business relationship with them. We have found them to be reliable, competent, efficient and honest,” Merrill wrote in the evaluation in October 2006.

Army officials had reason to know that Merrill was tied to AEY. In March of 2006, Merrill wrote an email to a military official describing himself as AEY’s vice president. In January 2007, he told Army officials that he’d set aside $1 million in case AEY needed extra capital.

A federal indictment describes Merrill as a “business associate of Efraim Diveroli, who provided financial and managerial assistance.” Merill was involved in some of AEY’s negotiations with subcontractors, the indictment said.

Nevertheless, Merrill’s was among the three ostensibly independent performance evaluations the Army had on file for AEY when they awarded it a $300 million contract in Janury 2007. Merrill, who also runs a Utah-based weapons dealership called Vector Arms, had responded to the Army’s request for information about Vector Arms’ dealings with AEY.

That’s all according to documents disclosed today at the House oversight committees hearing on AEY.

At the hearing, Rep. John Tierney (D-MA) grilled military officials about the review process: “Mr. Merrill had a conflict of interest. …How can you get an unbiased and objective assessment of past performance from someone who has a financial interest in the contract?”

Mitchell Howell, from the Defense Department’s Defense Contract Management Agency, responded that they agency is reviewing its procedures to prevent similar problems in the future.

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