Last year, the Air Force temporarily suspended the San Antonio division of the company from future contracts because it had obtained and distributed confidential Pentagon bidding data for its own competitive advantage. In 2006, the Justice Department said the company overbilled travel expenses, and the agency initially recommended that Booz Allen be barred from federal contracting.
Those incidents had little or no impact on Booz Allen’s success in recent years or on its ability to compete for federal contracts, which last year provided 99 percent of the company’s $5.8 billion in revenue.
Booz Allen now faces a greater test: Lawmakers and other officials are asking whether the company should be held to account for Edward Snowden, a former employee who had obtained national security documents and leaked them to the news media while at the firm.
But if the past is a guide, the government is not likely to scale back its reliance on Booz Allen or other large contractors soon, industry officials and policymakers agree. Although intelligence agency reliance on outside firms has declined some in recent years, the latest available estimates still show that about 70 percent of the U.S. intelligence budget is spent on contractors. And big, well-established companies continue to have outsize influence.
That is particularly true for Booz Allen, one of the most powerful firms within the government’s defense and national security structure. Nearly half of the company’s 24,500 workers have top-secret clearance.
The company also has deep connections within the defense and intelligence communities, including James R. Clapper Jr., a former Booz Allen executive who is the director of national intelligence, and R. James Woolsey, a former CIA director who was a senior vice president at the firm until 2008.
The man now heading Booz Allen’s intelligence operations, retired Vice Adm. John Michael McConnell, was the head of the National Security Agency in the mid-1990s and was appointed in 2007 by President George W. Bush to lead the government’s newly established Office of the Director of National Intelligence, which was set up to coordinate domestic and foreign intelligence gathering.
Those relationships and the sheer volume of work Booz Allen does for the federal government may have given the firm and others like it leverage when they face disciplinary actions, watchdog groups say.
The Project on Government Oversight testified in June that since 2000, there have been tens of thousands of suspension and debarment actions levied against companies and individuals. But its chief counsel said the number of large name-brand contractors, such as Booz Allen, that have been sanctioned can be counted on two hands.
“The government’s reliance on large contractors is often difficult to overcome,” said Scott Amey, general counsel to the nonprofit watchdog group, which maintains a contractor misconduct database. “Therefore, large contractors are in a powerful position to avoid suspension or debarment actions.”
There is no indication that Booz Allen faced penalties when its employee at MacDill received top-secret clearance despite his criminal record. The travel-overbilling case was settled with the payment of a fine.
Only the case concerning the San Antonio office resulted in an actual suspension. That action, taken by the Air Force, did not affect ongoing work and lasted two months.
The company declined comment on the past cases. But a spokesman, James Fisher, said, “Booz Allen is proud of our reputation for the highest ethical standards, built over nearly 100 years of service to our government and commercial clients.”
As the Snowden story continued to generate front-page news, Booz Allen chief executive Ralph Shrader predicted that his company would overcome the bad publicity from the Snowden leaks.
In remarks to employees at a “town hall” meeting late last month, Shrader said, “I think the important thing to understand is we cannot and will not let Snowden define us.”
“You define us. The work we do for our clients defines us, not the occasional aberrant in our midst,” he added. “There is nothing here for us to hang our heads about. We are a fine, fine firm. We stand on the list of Fortune’s Most Admired Companies. I plan to be on the list year after year.”
The disclosures by Snowden represent one of the most grievous breaches of security in the history of the super-secret NSA. Snowden, 30, who worked for just three months at Booz Allen, managed to obtain top-secret documents detailing broad government surveillance of telephone records and Internet traffic.
Little is known about how Snowden, a former security guard without a college degree, was able to get top-secret clearance and position himself at Booz Allen to obtain national security secrets.
“My position with Booz Allen Hamilton granted me access to lists of machines all over the world the NSA hacked,” he told the South China Morning Post on June 12. “That is why I accepted that position about three months ago.”
Booz Allen has accepted responsibility for past complaints of wrongdoing but continued to win contracts.
In 2006, the Justice Department proposed barring the company, along with four other major consultants, from participating in contracts for having received rebates from airlines, credit card companies and hotel chains while billing the government for the full undiscounted cost of the travel. The government dropped its lawsuits against the firms after they agreed to monetary settlements, with Booz Allen submitting nearly $3.4 million to the Treasury.
A few years later, the company received unwanted attention in a federal court prosecution of the MacDill employee working as a “counter threat analyst” at U.S. Central Command’s Joint Intelligence Operation Center in Tampa.
The employee, Scott Allan Bennett, had received one of the highest-level security clearances available in late 2008, even though a few months earlier he had been convicted of making “willful false and misleading representations” to the U.S. government.
The case, raised in Senate correspondence last week by Sen. Bill Nelson (D-Fla.), concerned an effort Bennett made on behalf of a South African woman he had met on the Internet who wanted to visit the United States. According to court documents, Bennett sought to get her a visa by falsely claiming that she would be working with the White House and the State Department while in the United States. He was sentenced to three years of probation.
In 2010, Bennett was arrested again after appearing intoxicated at the gate to MacDill Air Force Base, home to U.S. Central Command. He was subsequently charged and convicted on weapons charges and charges of making additional false statements to the government.
At the trial in Tampa, U.S. District Court Judge Virginia M. Hernandez Covington asked how Bennett could receive a top-secret clearance after his conviction. The U.S. attorney’s office in Florida was unable to answer the question, according to news reports.
The judge’s concern was echoed in a letter written by Nelson to the Senate Intelligence Committee Chair Dianne Feinstein (D-Calif.) in June. “Serious quality-control questions have been raised here,” Nelson wrote, asking that the committee investigate such cases. “We may need legislation to limit or prevent certain contractors from handling highly classified and technical data.”
Now in prison at the Schuylkill Federal Correctional Institution in Minersville, Pa., Bennett could not be reached for comment. His Washington attorney, Jeffrey O’Toole, declined to comment.
In 2012, the Air Force proposed barring the San Antonio office of Booz Allen from bidding on future contracts. The division had hired a Pentagon official who brought with him on his first day of work “non-public information,” which he shared with the company to help it win an information technology contract.
The Air Force lifted a temporary suspension on Booz Allen in April 2012 when the firm agreed to implement ethics and other reforms and pay $65,000. At the time, Booz Allen issued a statement saying that the company “accepts responsibility for that incident and related matters and agrees to implement firm-wide enhancements to its ethics and compliance program.”
Although the 2006 and 2012 requests for barring the company from bidding for certain contracts surprised those who follow intelligence contracting, those cases did not seem to damage the firm’s overall reputation.
“The company did have a few instances of misconduct,” said Steven Aftergood, who follows intelligence contracting for the Federation of American Scientists. “But that number is not terribly surprising for a company of that size.”
Yet the problems, in particular those raised by Snowden and other employees with improper access to confidential materials, suggests a broader systemic problem, Aftergood said.
“The current situation didn’t come about by accident,” he said. “It is the product of economic and political incentives that favor it. Those incentives continue to exist, so there is a serious question about how much it is going to change.”
Future of contracting
Booz Allen is hardly the only company touched by allegations of mishandled government contracts. In 2011, 1,094 individual and corporate contractors were suspended or barred by the departments of Defense and Homeland Security alone, according the latest available federal data. There were probably more, but transgressions by firms that contract intelligence work are not released publicly by the federal government.
Michael Birmingham, a spokesman for the Office of the Director of National Intelligence, said the intelligence community has lessened its reliance on private-sector contractors.
In 2008, about 27 percent of intelligence-community security clearances had been granted to private-sector workers, he said. Today, that number has declined to about 18 percent.Overall, as of late 2012, 4.9 million people have been granted security clearances, about one-fifth of them work in the private sector, according to data made public by the Office of the Director of National Intelligence.
But the growth in contracting in defense and homeland security work continues. That has been fueled by several factors — ongoing public worry about terrorism, antipathy toward big government and an evolution in Washington’s revolving-door culture that provides extraordinary rewards to top government officials who go private, experts say.
Yet even outsourcing’s most vocal skeptics agree contractors are here to stay, despite what they contend are illusory savings.
“Curbing the use of contractors would be difficult or impossible,” said Chuck Alsup, a retired Army intelligence officer and vice president of the Intelligence and National Security Alliance, an Arlington County-based association of private companies and individual experts. “It would be, frankly, unwise.”
Alice Crites contributed to this report.