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The High Cost of a Rush to Security
On June 26, 2002, Pearson's logistics manager, Debra Herbst, sent a letter to the nation's hotel industry. "I have selected Helms-Briscoe to be my 'Agent of Record,' " she wrote, according to an excerpt of the letter contained in the audit. "As such, Helms-Briscoe has the authority to negotiate on my behalf."
Auditors questioned the arrangement, saying that HelmsBriscoe had no incentive to keep costs down and that taxpayers did not get the best possible deal.
"The higher the guaranteed room block and the higher the room rates the more money (Helms-Briscoe) was guaranteed to receive as a placement fee," the auditors said. The arrangement "did not lend itself to controlling costs on this contract. To the contrary, it seems to have added costs buried within the charges from vendors at the assessment centers."
Pearson disagreed with the auditors. "The use of brokers such as HB to assist organizations in finding hotels suitable to specific event needs is a standard industry practice," the company said in its response.
For the hotels, many of which were experiencing low occupancy rates after the Sept. 11, 2001, attacks, the change in the contract to the hotel-based model meant millions of dollars in unexpected revenue. Auditors reviewed about two dozen of the 150 assessment centers and said they documented unsubstantiated spending at nearly every turn.
Bill Carney, who managed the assessment center at a Holiday Inn in Joplin, Mo., said many of the problems were due to pressure from government officials to ignore contracting rules designed to ensure that money was well spent.
"The normal procedures, where you dot the i's and cross the t's: We were told we didn't have time for that," said Carney, who was recruited by a subcontractor to work for Pearson. "You've got to remember the times. The country was pretty much in a panic. They wanted something they could point to and say, 'Everything is okay. We can go back to normal.' "
A Leaky Tent
In Manhattan, the government reserved three prominent hotels as assessment centers: the Marriott Marquis, the Millennium Broadway and the Waldorf-Astoria. The government also rented Pier 94, an exhibition-and-trade show center near the Hudson River. Auditors categorized more than $1 million in costs at those locations as "deficient" or unsupported.
At the Marriott and Millennium hotels, the government was billed $129,621.82 for long-distance phone calls without any supporting documentation. "Our review disclosed $3,403 of these costs were for international calls, a portion of which were to Columbia, South America," the audit states. "In addition, we found numerous calls that are $25 to $100 per call (at about $1 per minute), some of which were made in the late hours of the evening to residential numbers after normal work hours (past 10:00 p.m.)."
In its response, Pearson said the large hotel phone bills were justified because the TSA did not give the company enough time to fully staff its own call centers at the hotels. Most of the long-distance calls, the company contended, were business-related.
"NCSP has been able to find only $388.37 of the $3,403 in international calls," Pearson stated. "This amount includes five calls to Columbia, all on August 19, 2002, for a total of 12.7 minutes and at a charge of $156.36. While NCSP will review this further, it must be noted that there were candidates applying for the TSA positions residing outside the United States and who were contacted overseas during the assessment scheduling process."
Auditors zeroed in on spending at Pier 94 on the west side of Manhattan. On June 20, 2002, Pearson signed a one-page contract with a company called Port Parties Ltd. to set up an assessment center at Pier 94. Most of the invoices submitted were estimates, and the government paid the bills, the audit said.
Extra electrical circuits and cables: $19,292. An unknown number of tables: $19,250. An unknown number of chairs: $24,000. Miscellaneous labor: $94,860. Carpenters and electricians: $118,400. Security guards: $133,080.
The cost for the Pier 94 operation came to $662,988.51, or about $39,000 a day for more than two weeks. Auditors said the entire amount was unsubstantiated.
Pearson disagreed, saying that proper invoices had been submitted and approved: "DCAA's legal interpretation of the [contract] is thus flawed."
At a Hilton Hotel in Boston, a company called Atent For Rent Inc. was hired to construct a large tent with cathedral windows in the hotel parking lot, along with two smaller tents. The cost: $514,201.40. When it began to rain, the tents flooded. Workers scrambled to buy sandbags at Home Depot, containment vats called "cow tubs" to catch the runoff, and sump pumps. The work was directed by hotel employees rather than Pearson or its subcontractors, the audit said.
"The tent costs at the Hilton Boston Logan Airport and (Pearson's) payment of them highlights a lack of management oversight by (Pearson) in controlling costs," the auditors wrote.
Pearson responded that its personnel were on site watching over the contract. "There is no basis for the statement that NCSP lacked management control over the contract," the company stated.
To provide protection for TSA officials and job candidates at the hotels and assessment centers, Pearson hired a series of private security firms as subcontractors. In doing so, the auditors said, the company failed to follow a number of federal contracting rules requiring competitive bidding, price analysis and justification for sole-source awards and cost increases.
The auditors said the entire $27.4 million spent on security was deficient.
Again, Pearson contested the auditor's report: "There was and is plenty of objective data to demonstrate that the costs incurred and claimed by NCSP for security subcontractors are reasonable."
One of Pearson's security subcontractors was Ambassador Protection Services Inc. of New York. The company rented six magnetometers at a cost of $475 a day for a total of $125,400. Auditors said similar magnetometers could have been purchased for between $2,500 and $6,000 apiece. In its response to the audit, Pearson said it determined on its own that Ambassador could not support $76,264 of its service invoices and $39,900 of its magnetometer charges.
"NCSP refused to pay certain amounts to Ambassador and was subsequently sued by Ambassador," Pearson stated. "NCSP successfully negotiated a settlement to this dispute."
The DCAA is a division of the Pentagon that also reviews civilian contracts for the government. TSA officials hired the agency as part of an effort to gain control of the costs of the passenger-screening contract.
The auditors concluded in their reports that they could not get to the bottom of it.
Instead of categorizing unusual costs as "questioned," a term frequently used by auditors in drawing conclusions, the DCAA auditors examining the Pearson contract used the word "deficient" when they could not substantiate costs.
"We are unable to determine the reasonableness of the claimed amounts because we have not had access to (Pearson's) cost data for the related entries," the auditors wrote in their first 186-page report dated May 3, 2004. They produced a second 42-page document on Nov. 26, 2004.
DCAA officials have declined to release the audits, saying they are the property of their client, the TSA. Despite months of requests by The Post, including Freedom of Information Act filings, TSA officials continue to withhold the audits.
In response to the audit, Pearson executives argued that the federal government was not in a position to determine labor costs. Pearson told the auditors that the commercial marketplace should determine labor rates. They also said the TSA had waived its right to approve any no-bid work awarded to subcontractors.
Pearson contended that TSA officials made that waiver through their "acquiescence and silence" when they listened to Pearson's proposal in the spring of 2002 and did not object.
TSA officials said they looked out for taxpayers by calling on the DCAA to examine Pearson and subcontractor spending in the summer of 2002. In an interview yesterday, Lieber, the TSA contracting officer, said the audits helped him and his colleagues negotiate a settlement with Pearson, reducing their contract from $867 million in claimed costs to $741 million.
"I negotiated a settlement that is considered fair and reasonable for the services received," Lieber said.
Researchers Alice Crites and Madonna Lebling contributed to this report.