SAIC to pay $500.4M in settlement


SAIC’s headquarters in McLean. (Jeffrey MacMillan/Capital Business)
March 18, 2012

In his most extensive interview to date, John P. Jumper, the new chief executive at McLean-based Science Applications International Corp. , acknowledged that the company was hamstrung and its morale sagged as it waited for resolution of an investigation into an employment timekeeping program it managed for New York City.

Jumper said SAIC is now ready to move forward after reaching a settlement with authorities last week on alleged fraud in the CityTime program.

CityTime was “a dampener on [our] morale, on the spirit of the company,” he said in an interview last week. “We can step out from under that now ... We can start to play offense.”

Preet Bharara, the U.S. Attorney for the Southern District of New York, last week called problems in the program “perhaps the single largest fraud ever perpetrated on the city of New York.”

Under its settlement, SAIC will pay $500.4 million in restitution and penalties. The company will also waive an additional $40 million that the city has not paid, and the U.S Attorney’s Office for the Southern District of New York will appoint an independent monitor for three years to review certain SAIC policies and practices.

The attorney’s office has charged SAIC with one criminal count — to which it has pleaded not guilty — but will defer prosecution based on SAIC’s “cooperation with the investigation, remediation efforts and acceptance of responsibility,” the company said in a statement. If SAIC complies with the deferred prosecution agreement, the charge will be dismissed in three years.

Jumper, who took over at the start of the month, said it has been “difficult to make big decisions when you’re just not sure what the amount of the penalty is going to be, what the reaction’s going to be.”

Now the company will begin reshaping its strategy to grow its proportion of commercial work, particularly in the energy and health sectors, he said.

“We were prepared for this and ... we’ve got a strong balance sheet,” Jumper said. “It’s sort of the beginning of our ability to put this all behind us.”

SAIC has already recorded a charge of $232 million in anticipated losses connected with CityTime. The company is set to announce its fourth quarter earnings this week.

Two former SAIC employees have been charged with conspiring to defraud New York, and last year, SAIC said it removed three top executives — Deborah Alderson, president of the company’s defense solutions group; John Lord, her deputy; and Peter Dube, general manager of the enterprise and mission solutions business — in connection with the program. The company said it had no evidence that any of the three were personally involved in the fraud.

“We do feel responsible for what took place,” Jumper said last week. “The company feels just as injured by this major letdown of our two employees ... as the city of New York does.”

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