CityTime fallout continues for SAIC


SAIC’s headquartesr in McLean. (Jeffrey MacMillan/Capital Business)
April 15, 2012

McLean-based contracting giant Science Applications International Corp., facing a new federal investigation and ongoing government discussions, is still struggling to move past two troubled contracts and said that its growth prospects may be dampened.

Last month, the company announced it had agreed to pay $500.4 million to settle CityTime, an employment timekeeping system the company managed for New York City. Two SAIC employees have been charged with crimes related to the project.

In a recent filing with the Securities and Exchange Commission, SAIC said it has been in discussions with its federal customers about the CityTime case and its resolution.

“While we do not expect to be terminated on existing U.S. Government contracts or precluded from bidding on new U.S. Government contracts, we are working to resolve these matters with these government customers as quickly as possible, but no assurances can be given as to the timing or outcome of these discussions,” the company said in the filing.

Additionally, the company noted that the publicity surrounding the case may hurt its reputation, potentially damaging SAIC’s growth prospects.

SAIC reported in the filing that it has already made changes in response to CityTime, including implementing a corporate-level initiative to review programs with fraud or corruption risks, training on fraud and corruption risk factor detection for key program personnel and a new management committee combining members of the company’s ethics review and audit review committees.

The fallout comes as government spending slows, adding new pressures on contractors.

“I would characterize [CityTime] as a fairly isolated event,” said William Loomis, managing director at Stifel Nicolaus, which has a business relationship with SAIC. “We’re cautious on the company’s outlook overall just because of what’s happening in the federal market, but not specific to CityTime.”

SAIC is also trying to move beyond another company stumble. In September, a company employee transporting computer backup tapes between facilities in Texas reported the data stolen from his car, according to a company account. As a result, SAIC is providing a year of credit monitoring services to as many as 4.9 million patients treated at military hospitals and clinics over the last 20 years.

SAIC declined to be interviewed for this story, but said 141,275 individuals have taken advantage of the company’s credit-monitoring offer as of April 10.

In its SEC filing, SAIC said it is now a defendant in seven class-action lawsuits filed between October and March.

SAIC has filed a motion with a panel focused on multi-district litigation to transfer the cases to a single court for “consolidated or coordinated pretrial proceedings,” according to the filing.

SAIC added that it has insurance coverage — with a $10 million deductible — against judgments or settlements relating to the claims in the suits as well as its defense costs (with the same deductible).

Additionally, the company notes that the Department of Health and Human Services’ Office for Civil Rights is investigating the incident and could impose monetary penalties against the Pentagon and SAIC.

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