Fisker is in the media again. This time the story is how the almost-dead automaker was allowed to drawdown on their Department of Energy loan well after it had defaulted. While a great deal of information has been released, I still have a few questions.
According to a report by PrivCo, a corporate intelligence group, Fisker Automotive defaulted on their DOE loan agreement in December 2010 yet was allowed to draw funds from their loan up until June 2011. I'm not aware of what put them in default (missed milestone?). Either PrivCo hasn't made all the DOE FOIA documents public or I'm too ignorant to understand them. PrivCo's information is based on responses from a DOE Freedom of Information Act request.
Missed milestone? Forgetaboutit
It’s a fact that many federal acquisition programs fail to meet production milestones, yet they aren’t terminated immediately nor are funds withheld from contractors. If this were standard government procedure the F-35 would have been stopped years ago.
Granted, items like the F-35 are procured for government use. I get the disparity between a fighter jet and an electric car. My point is missed milestones aren’t uncommon when you combine highly-technical feats of engineering with the blundering bureaucracy of government.
GAO likely tripped over default notice (if it were filled that is)
In February 2011, the Government Accountability Office (GAO) released a report that looked at the Advanced Technology Vehicle Loan (ATVM) Loan program (GAO-11-145). In that report GAO never mentioned default or failed milestones. If the information provided above is accurate, that means GAO would have been talking with both DOE and Fisker during the period in question (December 2010 - June 2011). While the status of Fisker's loan agreement may have been outside of the scope of the GAO work, was that information withheld from GAO? If they were made aware of any Notice of Default, why didn’t they raise any flags?
Another thing to consider, the GAO review stated that ATVM staff had very little to any expertise in the field of automotive engineering or production and that it struggled to recognize milestone progress. Specifically, GAO recommended that DOE “accelerate efforts to engage sufficient engineering expertise to verify that borrowers are delivering projects as agreed.” Could this lack of in-house expertise have added to the inability of ATVM's ability to recognize progress?
I'm not trying to make up excuses for either Fisker or DOE, but wanted to highlight a few question I had that might help to understand how DOE could have continued to make payments to Fisker while they were in default of their original agreement. I’m sure many of these questions will be answered during the congressional hearing scheduled for April 24, 2013.
Here are a few excerpts I thought to have value that were pulled from the official loan agreement:
Business Plan Milestones
(i) with respect to the Karma Project, (A) completion of the Karma Engineering Works, (B) completion of all other engineering integration work required for the Karma Project, (C) a schedule for completion of all vehicle certification requirements in the United States and the European Union related to vehicle safety and environmental matters; (D) commencement of commercial production of the Karma vehicle and satisfaction of mutually agreed performance and quality assurance tests, (E) achieving Karma vehicle sales of II ,000 units by September 30, 20 II at an average price of not less than $87,900, and (F) creation of a satisfactory dealer network for sales of Karma vehicles,
(ii) with respect to the Kx Project, (A) purchase of the site required for the Kx Facility (to be completed no later than April 30, 20 I 0) (B) completion of construction and/or re-equipping of the manufacturing facility for the Fisker Kx vehicle and all related tooling work required for assembly thereof, (C) completion of all engineering integration work required for tooling related to Kx vehicle assembly; (D) a schedule for completion of all vehicle certification requirements related to safety and environmental matters for retail sales of the Kx vehicle in the United States and European Union; (E) commencement of commercial production of the Kx vehicle at the Kx Facility in quantities to be mutually agreed and satisfaction of mutually agreed performance and quality assurance tests and (F) creation of a satisfactory dealer network for sales of Kx vehicles
Under Project Documents within the loan documents it states that, “DOE be given notice of Fisker defaults and an opportunity to cure the defaults, and such other provisions for DOE's benefit as it may reasonably request.”
Could this mean that DOE (ATVM) was provided a Notice of Default and took six months to determine a 'cure' for whatever the documented violation (missed milestone) might have been?
“Each Advance of the Loans, including the initial Advance, is subject to the satisfaction as of the date of such Advance (the "Advance Date") of the following conditions precedent, which must be to the satisfaction of DOE” (a-i omitted)
(j) Milestones. All Milestones contemplated to be achieved as of such Advance Date have been substantially completed and Fisker shall have delivered a certificate to DOE to the foregoing effect”
Further into the Terms of the Loan it states...
“If any Event of Default (other than a failure to pay principal when due) or condition that, with the passage of time or the giving of notice, would constitute an Event of Default occurs, Borrower shall notify Lender of the occurrence of such Event of Default or the existence of such condition in writing within ten (1 0) business days of the Borrower becoming aware of the occurrence of such Event of Default or condition.”
A few important questions that still need to be answered:
What was the milestone that was missed?
Was it a milestone from the Business Plan (listed above as i and ii) or a Minimum Additional Equity Milestone?
Was there technical confusion regarding the milestone that delayed the Notice of Default?
Did Fisker file the required 10 day notification of Event Default to DOE? If so, what action did DOE take?
Why didn't GAO discover any of these issues during its review of the program office?
Did DOE did act, exercise their right to remedy the situation and then conclude a stop of drawdown was necessary?
These are just a few of the questions I have regarding this media report.
Hopefully Representative Issa and the rest of the House Committee on Government Oversight read Jalopnik and can use this post to prepare for their hearing next week.