washingtonpost.com
Contracting Rush For Security Led To Waste, Abuse

By Scott Higham and Robert O'Harrow Jr.
Washington Post Staff Writers
Sunday, May 22, 2005

First of two articles

After the terrorist attacks on New York and Washington, the U.S. government rushed to secure the nation. Billions of dollars were spent to protect Americans with improved passenger screening, bomb-detection machines at airports, radiation monitors at ports and computer networks to identify suspected terrorists at the borders.

Government leaders say the nation is safer than it was before Sept. 11, 2001. But the government's internal audits have repeatedly questioned the cost and effectiveness of the equipment and security systems bought from corporations that received a torrent of money under loosened regulations, limited oversight and tight congressional deadlines.

In February, the Office of Management and Budget found that only four of the 33 homeland security programs it examined were "effective." In March, the Homeland Security Department's inspector general noted "the lack of improvement" in the performance of passenger screeners. In April, the Government Accountability Office reported that "the implementation and transformation of DHS remains high-risk."

Scores of government reports, congressional testimony and interviews with dozens of government and business officials document rising costs and specific flaws in some of the major systems underway:

· The contract to hire airport passenger screeners grew to $741 million from $104 million in less than a year. The screeners are failing to detect weapons at roughly the same rate as shortly after the attacks.

· The contract for airport bomb-detection machines ballooned to at least $1.2 billion from $508 million over 18 months. The machines have been hampered by high false-alarm rates.

· A contract for a computer network called US-VISIT to screen foreign visitors could cost taxpayers $10 billion. It relies on outdated technology that puts the project at risk.

· Radiation-detection machines worth a total of a half-billion dollars deployed to screen trucks and cargo containers at ports and borders have trouble distinguishing between highly enriched uranium and common household products. The problem has prompted costly plans to replace the machines.

"Whenever you try to spend a billion dollars in a hurry, you're vulnerable to people who come to the plate and sell you some things that aren't really well prepared," said Paul J. Werbos, a computer expert at the National Science Foundation who advises U.S. government agencies. "The biggest concern is that we're going to spend a whole lot of money without getting something useful out of it."

Since fiscal 2001, annual spending on contracts managed by the Homeland Security Department or its precursor agencies has more than doubled, to $5.8 billion, according to data from Eagle Eye Publishers Inc., a company that analyzes government contracting data. The beneficiaries include Unisys Corp., Boeing Co., Lockheed Martin Corp., General Dynamics Corp. and Accenture Ltd., along with such lesser-known companies as Veritas Capital Inc. and Datatrac Information Services Inc.

At a recent gathering of contractors in Northern Virginia, the chief contracting officer for one Homeland Security division said he wasn't sure how his agency had spent $700 million -- more than one-third of its budget last year was listed under "other."

John Ely, executive director for procurement at U.S. Customs and Border Protection, said he was confident that the money could be tracked.

"Don't think because we don't know what that is, we couldn't find out," Ely said on March 31.

Ely said he needed to triple his contracting staff. "There's not enough of us," he said.

Agency officials last week blamed the confusion about the spending on the integration of a new computer system and chronic data-entry mistakes that will be fixed.

Contracting specialists say the push on homeland security came at a time when the government was engaged in a broad effort to turn over key functions to corporations. The trend, begun during the Clinton administration to streamline government, included deep cuts to the federal workforce responsible for contracting and oversight.

Today, government officials often refer to corporations as "partners" rather than contractors. In some cases, companies are even hired to oversee the work of other companies.

"We have allowed the contractors to totally take over the process, and as a result, the costs are getting totally inflated," said D. Kent Goodger, a federal contracting official for 38 years who now teaches federal procurement courses for the Agriculture Department and other agencies. "Right now, it's out of control."

Three years ago, the man whose department was then responsible for leading the efforts to secure the nation's airports questioned whether it was wise to attempt so much in so little time.

"Well, you don't have to be a rocket scientist to figure out you're not going to get from here to there given that kind of production scheme," Transportation Secretary Norman Y. Mineta said in a television interview.

He was roundly criticized for those remarks by the White House and Congress. The deadlines came with consequences.

"Because of the congressional deadlines, it cost a lot more money," said corporate lawyer Angela B. Styles, chief of the OMB's procurement division under President Bush from 2001 to 2003.

"If you had an infrastructure in place with people who knew how to do things quickly, like people from the Department of Defense, you would have had more success," she said. "With the deadlines and the poor acquisition workforce and the public pressure, it was a recipe for disaster from the very beginning."

In an interview Friday, the deputy secretary of homeland security, Michael P. Jackson, said government leaders deliberately chose to team up with companies to jump-start the country's defense against terrorism, an approach he continues to support. He praised government employees and said their efforts have made the country safer. But Jackson acknowledged that "there were problems, and significant ones," with some of the contracts.

Jackson, who was confirmed in March, said he and recently appointed Homeland Security Secretary Michael Chertoff have made it a top priority to enhance oversight and correct the problems.

"It's good government, and it's what we owe the taxpayers," said Jackson, who was the deputy transportation secretary at the time of the attacks. "It's what we have a core responsibility to do."

Deadline-Driven Culture

Two months after the planes struck the World Trade Center and the Pentagon, Bush and Congress took steps toward creating a new security infrastructure. On Nov. 19, 2001, Bush signed a bill directing the government to hire and deploy a federal workforce to screen airline passengers and baggage. The act also called for the creation of the Transportation Security Administration.

To speed up the contracting process, the act exempted government officials from Federal Acquisition Regulation guidelines, long the standard for contracting oversight. Congress also gave the government a series of deadlines for putting improvements in place.

To help meet the deadlines, the TSA awarded a contract to NCS Pearson Inc. to hire 30,000 federal screeners within 25 weeks to replace a patchwork of private security firms at the nation's 429 major airports.

After the federal screeners began their work, reports started to circulate that some had criminal records. Federal auditors later discovered that TSA managers did not have reliable databases to conduct background checks. Employment files were disorganized and kept in hundreds of unsecured boxes.

The cost of the Pearson contract rose to $741 million from $104 million. Auditors blamed much of the increase on the deadlines, the lack of TSA supervisors to manage the contract, poor management by Pearson and weak financial controls at the agency.

Auditors later found that TSA managers lacked their own contract officers or a system to monitor companies. The managers routinely relied on information that was "out-of-date, incomplete, inaccurate, or otherwise unreliable," the GAO reported.

Another federal audit questioned $124 million in spending on the Pearson contract, and the government initially withheld $90 million from the company. The auditors also said that from $6 million to $9 million in spending by a subcontractor appeared "to be attributed to wasteful and abusive spending practices," and cited "the complete breakdown of management controls" at Pearson.

Mac Curtis, the president of what is now called Pearson Government Solutions, said in an interview last week that all issues had been resolved and all money had been paid. Curtis said the contract grew largely because the TSA ordered major modifications, including a doubling of the number of screeners hired, to 62,901. The government also requested that an additional 66,219 be pre-certified for immediate hiring.

The TSA also demanded that the job interviews take place at hotels and conference centers rather than at the company's 2,500 assessment centers, which added significantly to the cost, said Curtis, who noted that his company was responsible for hiring the screeners but not training them.

"We met the mission," Curtis said. "We met the mandates."

TSA officials acknowledged that government decisions drove up the cost of the Pearson contract. "We did not properly identify the requirements," said Lee R. Kair, assistant TSA administrator for acquisition. "There was a real sense of speed on this. That's what led to many of the changes."

The Homeland Security Department's inspector general deployed undercover agents to test the new screeners. Such agents try to smuggle weapons or simulated explosive devices through airport checkpoints. Officials use the results to test vulnerabilities in the system.

Last month, the inspector general said that "the lack of improvement since our last audit [a year ago] indicates that significant improvement in performance may not be possible without greater use of new technology."

Jonathan J. Fleming, the TSA's chief operating officer, said the undercover agents are able to evade screeners and their systems at about the same rate as shortly after Sept. 11, 2001. But he and other government officials said the comparison is unfair because the agents testing the screeners are using more sophisticated techniques.

'A Reasonable Profit'

When Clark Kent Ervin began his work as the Homeland Security Department's first inspector general in early 2003, he quickly realized that the department was about to become one of the top contracting bureaucracies in Washington without the infrastructure to handle the task. Ervin, a Bush supporter from Texas, found that the new department had poorly staffed contracting offices spread across the 22 agencies that were about to be merged to form the department, the largest federal reorganization since World War II.

Ervin said he tried to alert Tom Ridge, who had recently been confirmed to head the Homeland Security Department.

"Two areas that DHS needs to get control of early to minimize waste and abuse are the procurement and grant [federal assistance] management functions," Ervin wrote in the memo on March 18, 2003, 17 days after the department opened its doors.

The memo urged Ridge to train and supervise the department's contract officers and establish a "robust and effective" program to monitor contractors.

"Early attention to strong systems and controls," the previously undisclosed memo said, "will be critical both to ensuring success and maintaining integrity and accountability."

A few weeks later, Ervin said he was told that Janet Hale, the homeland security undersecretary for management, had held up the delivery of the memo. Ervin said he was told that Hale did not want to give Ridge the news that the systems and controls were not in place. Hale said Friday that she did not recall the episode but that she strongly supports efforts to bolster the department's contracting oversight.

"I would not stop a memo from the IG," she said. "It's just not in my disposition."

Ervin said that he then faxed the memo himself to Ridge's office, but that he never heard back from the secretary.

Ridge said in an interview yesterday that he did not recall receiving the memo but that his department addressed the kinds of issues Ervin raised. "I'll give him the benefit of the doubt that he sent it," Ridge said. "Clark raised a lot of alarm bells. It was his responsibility."

Before long, Ervin was investigating a contract the TSA awarded to Boeing that included the delivery and installation of 1,100 explosive detection systems -- stand-alone, minivan-size machines designed to examine passenger baggage. Even though Boeing's bid was the highest, the company won the contract because TSA officials said they thought Boeing had the expertise to best manage such a complicated federal contract under the deadline pressure.

Boeing subcontracted 92 percent of the work, much of it to two firms that made the machines: L-3 Communications Holdings Inc. and InVision Technologies Inc. Boeing hired other companies to install and maintain the devices.

Ervin's auditors would later find Boeing's contract with the TSA to be extremely favorable to the company.

The TSA guaranteed that all of Boeing's costs would be covered. The agency further guaranteed that Boeing's profit would be based on a percentage of those expenses, the auditors found. Such an arrangement, cited in the inspector general's report as a "cost-plus-a-percentage-of-cost" contract, is banned by federal law, Ervin's office later said in a report.

The contract structure removed an important incentive to hold costs down, Ervin said in an interview. The TSA initially estimated the Boeing contract to be worth $508 million. Within 18 months, the cost more than doubled, to $1.2 billion, auditors found.

In September 2004, Ervin's office issued its critical report, saying the TSA failed to meet its obligation to ensure that Boeing got only "a reasonable profit" on its contract.

As the manager of the contract, Boeing received about $82 million in profit from 2002 to 2003, the report said. That was a 210 percent return on the investment the company had made in the project, Ervin's office found; $49 million of the profit was deemed to be "excessive."

The inspector general also found that the TSA gave the company at least $44 million in award fees without evaluating the company's performance. Ervin described those fees to The Washington Post as "bonuses."

In a written statement to The Post, Boeing disputed the inspector general's findings. The company denied that it received a 210 percent profit or that it had received a prohibited "cost-plus-a-percentage-of-cost" contract. A TSA contracting official on Friday said agency officials "do not believe" they used an inappropriate contract.

The company said the contract grew because it and its subcontractors had to remodel airport lobbies and other areas to accommodate the new machines.

Boeing said the TSA recognized this problem and agreed to adjust the contract accordingly. The contract was modified 54 times, Boeing said.

"This was a very challenging program to execute," Boeing said. "Timelines were very tight and Boeing met all of them."

Boeing noted that the TSA, in its response to the inspector general, said the company was "appropriately compensated."

Elaine C. Duke, who was then the TSA's deputy assistant administrator for acquisition, defended the contract and the agency's handling of it. Duke cited the high-risk nature of the work, the technical complexity of the job, competitive market pressures, the congressional mandate and the lack of staff resources -- there were only five employees in the TSA's acquisition office when the contract was awarded.

"One should recognize that these are unique circumstances that have not and will not be repeated," Duke wrote in her response to the inspector general.

Ervin took a different view.

"The bulk of the work was done by subcontractors. Boeing could have been cut out entirely," he said in a recent interview. "They took advantage of a very good deal they got for themselves.

"The government was just inept," he said. "TSA didn't know what they were doing, or they didn't exercise due control over the contract."

At the time of the Boeing contract, the TSA was handling more than $4 billion worth of contracts without enough staff members to ensure the work was being properly supervised, according to federal auditors. Last year, GAO auditors examined 21 contract files at the TSA. They found that several of the contract files, including one covering work by a subcontractor on the bomb-detection machines, "did not contain evidence of government surveillance to ensure cost efficiency," said Bill Woods, who directed the audit.

The GAO later cited a 2003 TSA internal study estimating that the agency needed as many as 628 employees to run its Office of Acquisition, which awards and monitors contracts. A year later, the office still had only 61 people, the GAO found.

Ron Endicott, a former federal contracting official hired as a consultant in 2003 to help assess the TSA's acquisition workforce, said more contracting officials were needed to watch the money.

"The workforce over there was dying on the vine," said Endicott, who retired from the federal government after nearly four decades. "People were working 16 hours a day, six and seven days a week, and a lot of talented people were leaving. It was dangerously understaffed."

Kair, the TSA contracting official, said he now has 83 acquisition employees and plans to hire more.

After the bomb-detection machines were put in airports across the country, some of them began to register false alarms. Screeners were forced to open and hand-check bags. Lines backed up, infuriating passengers and airline managers.

The false-alarm rates have since come down, according to counter-terrorism experts and government scientists familiar with the machines. They say the reason is that the machines have been calibrated to be less sensitive, cutting the false alarms but also making the machines less effective.

"When used the way they're supposed to be used, they're almost as good as a dog," said a government technology expert intimately familiar with the machines, who spoke on condition of anonymity for fear of retribution. "The big machines have a very high false-alarm rate. As a result, as anybody in counter-terrorism knows, U.S. officials set the standard way too high, and that's bad." The TSA's Fleming disputed that the machines have been made less sensitive, but he said the agency has upgraded the software to improve their effectiveness.

Last month, the GAO issued a report documenting a series of problems with the bomb-detection machines, including poor contract oversight, and said the stand-alone machines were hampered by "operational inefficiencies." The report also faulted TSA officials for not conducting an analysis that might have led them to a better method: installing machines "in-line" with baggage conveyer belts, speeding up and simplifying the process.

Members of Congress are now calling for a new generation of "in-line" machines, which are considered better at detecting explosives because they rely on the latest technology. The cost: an additional $3 billion to $5 billion.

The TSA was forced to choose the lesser technology primarily because of deadline pressure, government scientists and aviation experts said.

"Congress was frustrated. They said, 'We're going to give you a deadline, and you're bloody well going to meet it,' " said Cathal Flynn, associate administer for civil aviation security at the Federal Aviation Administration between 1993 and 2000 who had been working to install bomb-detection machines in airports for years. "Now they have to spend billions of dollars to get these machines out of the lobbies and put the new ones in the baggage lines."

David M. Stone, assistant secretary in charge of the TSA, said the agency is addressing the problems of the past and has made improvements in all areas. "The TSA of today is not the TSA of 2003," he said in an interview Friday.

A High Risk of Failure

Last year, in a confidential report prepared for the House Homeland Security Committee by a GAO auditor on loan to the panel, the entire Homeland Security Department was deemed to be at "high risk" of failure. The auditor noted in his report, a copy of which was obtained by The Post, that without a stronger management system, "the agency will not have the ability to effectively protect our homeland."

Financial controls were so lax, auditor Glenn Davis found, that DHS officials were unsure whether a $1.2 billion budget shortfall was real or simply an "accounting irregularity." The confusion prompted the DHS to impose a hiring freeze last spring on new customs and border agents. A few weeks later, budget managers concluded that the shortfall was an accounting error, the report said.

"The ambiguity about staffing levels calls into question whether the department can be confident that there is sufficient manpower at our borders to prevent the unwanted entry of terrorist factions into this country," Davis wrote in his report. "Weaknesses in DHS financial systems also could expose the agency unnecessarily to excess waste, fraud and abuse."

The report noted that contracting officers were too overwhelmed to track and supervise billions of dollars worth of contracts. "DHS still struggles to compile a detailed and accurate listing of its contracts and to keep track of spending by its agencies," the report concluded. Davis declined to discuss his report.

A GAO report released last month found that the Homeland Security Department's Office of Procurement Operations, which monitors many of the department's contracts, had 19 employees supervising an average of $101 million in contracts each. By comparison, 332 employees at the U.S. Coast Guard, a Homeland Security division that runs its own contracting office, averaged $6.3 million.

"If you don't have controls over major programs, chances are increased you're going to waste a lot of money and waste a lot time and keep doing the same things over and over again," said Michael J. Sullivan, a GAO analyst who directed the Homeland Security Department procurement study. "They need to get staffing up. They need to get training up. They need to get a handle on oversight."

Further limiting oversight: No single official has been given clear responsibility for all of the department's procurement spending, Sullivan's report said. The lower-level managers are often poorly trained. In the past year, only 22 percent of homeland security contracts and programs were being supervised by managers who had the necessary training and certification, the GAO auditors said.

As a result, relatively inexperienced government workers are required to monitor corporations armed with highly skilled contract specialists and lawyers, who increasingly work side-by-side with the government workers.

"What's developed over the last decade is a new culture that has put [contracting officials] in a very vulnerable position," said Goodger, the veteran government procurement official.

"From a contracting perspective, it's not a healthy situation," he said. "Contractors typically will take advantage of government employees."

Homeland Security officials acknowledged that their contract oversight staff has been understrength and said they are working to bolster it. They now have 60 people in their procurement office, and they plan to more than double that number.

"You just have to rebuild the workforce," said Hale, the undersecretary for management. "This is terribly important."

Making 'His Displeasure Known'

As chief of the Homeland Security Department, Ridge grew frustrated by the drumbeat of bad news contained in the audits, particularly from his department's own office of inspector general, according to Ervin. Twice last year, Ridge summoned the inspector general to his office to complain about his reports, according to Ervin.

Ridge was particularly upset with one report documenting problems with a visa-waiver program and another describing difficulties with terrorist watch lists, Ervin said.

"He said he regarded the reports as being unduly critical," said Ervin, whose political appointment expired in December and who now works at a District think tank. "He was trying to make his displeasure known."

Ridge said he never asked Ervin to "modify or mollify" his reports. But he objected to Ervin's methods.

"I said, 'Do you feel obligated to send every report to the Hill? Does everything you do have to end up in a press release?' "

Ervin said he responded that inspectors general do not answer to agency chiefs but to Congress and the public. "His view was, I wasn't part of the team," Ervin said. "I told him that I thought the team was supposed to be the American people."

Database editor Sarah Cohen and researcher Alice Crites contributed to this report.

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