The Defense Department has responded to the inquiries of a special congressional commission in the matter of a controversial pandemic stimulus loan made to a trucking company with connections to the White House, according to a letter obtained by Inside Defense.
The letter, signed by Pentagon acquisition chief Ellen Lord, was sent recently to the Congressional Oversight Commission established to review the $2.2 trillion in COVID-19 stimulus spending.
The commission's queries, sent to DOD on Aug. 7, stemmed from Defense Secretary Mark Esper's recommendation that YRC Worldwide, an Overland Park, KS-based trucking company, receive a $700 million loan from a special Treasury Department stimulus fund set up to bolster companies critical to national security and battered by the pandemic.
YRC received the $700 million loan from the federal government in July in exchange for a 30% stake in the company.
The loans are intended for companies affected by COVID-19 that are either performing high-level defense contracts or operating under a top-secret facility security clearance. YRC does not meet either criteria, but the law allows for the loans to be made to companies if the Treasury Department receives a recommendation from DOD, which it received.
The COC, meanwhile, has said it is worried the loan to YRC "appears to expose taxpayers to significant risk" as the company was struggling financially for years prior to the pandemic.
The loan has also drawn scrutiny because of YRC's ties to the Trump administration. YRC CEO Darren Hawkins was named to President Trump's Great American Economic Revival task force in April and former YRC Chairman and CEO Bill Zollars was appointed by the president and confirmed by the Senate to the U.S. Postal Service board of governors in June.
In its inquiry, the COC asked the Pentagon several detailed questions about how it certifies companies are critical to national security and therefore qualify for the special Treasury Department loan. The COC also asked specific questions about the Pentagon's relationship with YRC.
In her letter, Lord said DOD does not contract with YRC directly. The company is subcontractor to Crowley Logistics, Inc., a transportation and logistics firm used by DOD and "is the largest single provider of less-than-truckload (LTL) services (68% of cargo moved LTL) to the Department of Defense and delivers items like food, electronics and other necessary supplies to military locations around the country," she wrote.
The term "less-than-truckload" shipping applies to companies moving relatively small freight.
Lord said YRC transports "a wide variety of supplies" for DOD.
The COC asked the Pentagon why it determined YRC -- "the fourth-largest less-than-truckload U.S. shipping provider" -- is critical to maintaining national security. Lord responded: "It is important that our troops have the supplies they need in order to be able to perform their duties and defend the country."
The commission, pointing out that YRC "has struggled financially for years prior to the COVID-19 crisis," also asked if DOD had taken steps prior to the pandemic to determine a path forward if YRC ceased operations.
Lord said DOD "did not develop any contingency plans."
Additionally, Lord said DOD did not consider replacement services for YRC as "DOD does not contract with YRC directly."
Lord also told the commission DOD did not communicate with any of YRC's creditors because "such inquiries would be beyond the scope of the single question put to the DOD: is the company critical to maintaining national security?"
Lord said DOD uses the following criteria when recommending companies for loans under the Coronavirus Aid, Relief, and Economic Security Act: "1. Does the company currently supply to DOD via a direct contract or through a subcontract? 2. Are they owned in whole or in part by China or Russia? 3. Are they participating in any other COVID-19 related loan or grant program? 4. Are there alternate sources for the item? 5. Is what they supply a commodity or commercially available item (i.e., duct tape)?"
The COC did not immediately respond to a request for comment on Lord's letter.