The Pentagon's billionaire second-in-command has sent a fortune in taxpayer money to a company that's tied to his old business.
Deputy Defense Secretary Steve Feinberg's department has paid $300 million to Alvarez & Marsal, a corporate turnaround consultancy and longtime partner of Cerberus Capital Management, the private equity firm Feinberg co-founded and ran, The Wall Street Journal reported Thursday.
The payments, which come on top of work already done by government employees, were described in documents reviewed by The Journal and by people familiar with the matter. They are part of Feinberg's sweeping push to overhaul how the military builds and buys weapons.
The connections run deeper than the contract. One of Feinberg's senior deputies, Pete Guinto, recently left the Pentagon to join the consultancy. Another, George Kollitides, was previously a partner at Alvarez & Marsal Capital, a separately managed investment firm linked to the consulting business.
Some officials have privately asked why taxpayers, rather than military contractors, are footing the bill. Others told The Journal the work partly duplicates what the department already does, noting it has its own team devoted to boosting arms production and an office with thousands of employees stationed inside contractor factories.
Feinberg defended the arrangement.
"There's a big shortage in the department of capable operators," he told The Journal. "Our acquisition teams and our department people are terrific, but they're not operational manufacturing people."
A spokeswoman for the consultancy said it is "proud to serve clients across all industries, and all levels of government." A spokeswoman for the investment arm said its staff has no hand in running the consulting side, and vice versa.
The Pentagon has also brought on McDermott Will & Schulte, the law firm that represents Cerberus, to help negotiate deals. A spokeswoman for the firm said its Pentagon work is reviewed by federal ethics officials and that it would step aside from any transaction involving a Cerberus affiliate.
Feinberg moved his Cerberus holdings into an irrevocable trust for his adult children when he took the job, but critics have flagged potential conflicts given the firm's defense-linked portfolio. Sen. Elizabeth Warren (D-MA) wrote to him in July citing "ongoing concerns." A Cerberus spokesman said Feinberg "is not involved in the operations of Cerberus or its portfolio companies in any way."
Feinberg's standing has also come under question, with several outlets reporting that White House officials interviewed potential replacements, which the White House has denied.
"I have total support from the White House and the department," Feinberg said. "And I'm all-in to the end of the term."