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The High Cost of a Rush to Security

Skyrocketing Costs

The original contract started at $104 million. But the contract was on a "time and materials" basis, meaning that most of the costs for the number of hours worked and services were not fixed. Pearson and government officials said they had no idea how much the contract would end up costing. Procurement experts say that such an arrangement is less desirable than other contracts because costs can get out of control if they are not closely monitored.

With the contract barely a month old, the TSA made two decisions that would profoundly alter the project's course.

First, the government doubled the number of screeners to be hired, to 60,000.

Then, Pearson says it was directed to deploy the same model the government used to hire roughly 3,000 federal air marshals. Rather than interview job applicants at Pearson's assessment centers, the company would now have to set up assessment centers from scratch at hotels and other facilities located at or near airports across the country.

Suddenly, the company needed to find hotel space and conference centers. The solution was to hire people and companies with one goal in mind: meeting the congressionally mandated deadlines. Pearson ended up hiring 168 subcontractors to handle everything from call-center operations to security squads at every assessment center. Pearson's subcontractors hired their own subcontractors. Along the way, costs were marked up, according to the audit.

Security guards in the Virgin Islands paid $15 and $20 an hour were billed to the government at $30 and $40 an hour. Office workers provided by Kelly Services Inc. at $20 an hour were billed to the government at $48.07 an hour. Auditors later determined that Kelly provided about one-third of the $114 million in costs Pearson claimed for subcontract and temporary labor.

In its response, Pearson said it billed subcontractor hours at higher rates than it paid for them under an accepted practice known as "mapping" -- where labor performed is matched against job categories specified in the contract. Pearson said it was under no legal or contractual obligation to "simply pass-through labor costs (on a dollar-for-dollar basis)."

Pearson handed out much of the work with little oversight and no competitive bidding, the audit shows. The justifications for hiring without bids were often created months after the work was awarded, the auditors said. In many cases, the justifications amounted to a few words: "National Security" or "Time Limits" or "Exigent Circumstances" or "Unusual and Compelling Urgency."

Frank Berger, who ran assessment centers in Des Moines and Davenport, Iowa, said Pearson officials and subcontractors worked hard but sometimes fell victim to pressure and haste.

"Pearson was challenged to do a horrendous job in a short period of time," said Berger, who along with Cowan and others was fired after Pearson accused them of planning a competing business, a charge the men deny. "The waste was unbelievable because there were little checks and balances. There were Pearson officials and subcontractors who had carte blanche."

"I never saw any government people," he said. "There was zero government people involved."

In an interview yesterday, TSA contracting officer Richard Lieber said it was Pearson's responsibility to keep watch on subcontractor activity on behalf of the government.

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