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The High Cost of a Rush to Security

Skyrocketing Costs

While government officials in the past have hinted at problems with the contract, which rose to $741 million in April 2003 from $104 million in February 2002, the extent of the questionable spending has never been disclosed. Only a few details have emerged in brief congressional testimony and scattered news reports. Government officials have repeatedly denied media requests for access to the audit, which was completed last year and labeled "For Official Use Only." A copy was obtained independently by The Washington Post.

The audit scrutinized expenses as small as $2.95 paid for a soft drink and as large as $114 million spent on all subcontractor labor, sampling bills and finding a consistent theme of a failure to follow federal contracting rules for documenting and justifying charges and cost increases.

The audit refers to internal Pearson reports that sharply criticized the behavior of some of the 168 subcontractors hired to help complete the contract. One Pearson official, referring to a security company hired to provide services, wrote that "there appeared to be serious fraud occurring."

Government managers and Pearson executives have long maintained that they performed a "major and historical accomplishment" by replacing an inefficient patchwork of private passenger screeners with a more professional federal workforce. They said they did the best they could under difficult circumstances and spent taxpayer money wisely.

"We are a threat-driven, risk-management organization," said Tom Blank, the TSA's acting deputy administrator. "We knew we were threatened. There were bad guys out there. We never questioned that we needed to do this within the time frame Congress mandated. . . . Any time you are on a war footing, you will pay a premium for products and services."

Last year, in a 204-page response to the audit, Pearson said the document was "fundamentally flawed" and "distorted" and should be withdrawn. Pearson pointed out that the auditors did not "question" their costs as unreasonable, but instead called them "deficient," a term that means unsubstantiated or not properly documented.

"DCAA's conclusions as to 'deficient costs' are based on a legal fiction," Pearson said in its response. "DCAA does not opine that costs under the Contract are unallowable, unallocable, or unreasonable, nor does it question such costs. DCAA declines to become the arbiter of whether a cost is reasonable or not under the circumstances."

Pearson President Mac Curtis defended his company's handling of the contract in a written statement yesterday.

"Under a time of national urgency and constantly changing circumstances, Pearson met the mandate and delivered a federal screener force by a deadline which many thought was impossible," Curtis said. "In the end, Pearson was required to do four times the originally requested work in less than half the originally allotted time. Over the 22 months while the DCAA audit was conducted, Pearson fully cooperated."

DCAA auditors said in their report that they were blocked from conducting a complete review by Pearson executives, who declined to provide key documentation about cost and pricing, subcontractor activity and other matters. In some cases, the auditors said, Pearson officials declined to respond to specific questions about the contract.

'For the Purpose of Efficiency'

The TSA awarded the passenger screening contract on Feb. 25, 2002, to the winner of a competitive bidding process -- NCS Pearson, an educational testing division of Pearson PLC, a media and publishing company based in England. Three months earlier, President Bush had signed the bill creating the TSA and directing it to federalize the passenger screening workforce at the nation's 429 major airports by Nov. 19, 2002.

Officials at Pearson, which maintains an office in Arlington, said they would use a network of their own educational "assessment centers" to test applicants for 30,000 screener jobs. Although the company had worked for Wal-Mart Stores Inc. and other large firms, its passenger-screening contract dwarfed its previous efforts.

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