The High Cost of a Rush to Security
TSA Lost Control of Over $300 Million Spent by Contractor to Hire Airport Screeners After 9/11

By Scott Higham and Robert O'Harrow Jr.
Washington Post Staff Writers
Thursday, June 30, 2005

The money was spent in the name of improving security at the nation's airports:

· $526.95 for one phone call from the Hyatt Regency O'Hare in Chicago to Iowa City.

· $1,180 for 20 gallons of Starbucks Coffee -- $3.69 a cup -- at the Santa Clara Marriott in California.

· $1,540 to rent 14 extension cords at $5 each per day for three weeks at the Wyndham Peaks Resort and Golden Door Spa in Telluride, Colo.

· $8,100 for elevator operators at the Marriott Marquis in Manhattan.

· $5.4 million claimed for nine months' salary for the chief executive of an "event logistics" firm that received a contract before it was incorporated and went out of business after the contract ended.

Those details are contained in a federal audit that calls into question $303 million of the $741 million spent to assess and hire airport passenger screeners for the newly created Transportation Security Administration after the terrorist attacks of Sept. 11, 2001. The audit, along with interviews with people involved in the passenger-screener contract, paints a rare and detailed portrait of how officials at the fledgling agency lost control of the spending in the pell-mell rush to hire 60,000 screeners to meet a one-year congressional deadline.

The audit, performed by the Defense Contract Audit Agency at the TSA's behest, spotlights scores of expenses: $20-an-hour temporary workers billed to the government at $48 per hour, subcontractors who signed out $5,000 in cash at a time with no supporting documents, $377,273.75 in unsubstantiated long-distance phone calls, $514,201 to rent tents that flooded in a rainstorm, $4.4 million in "no show" fees for job candidates who did not appear for tests.

The audit faulted the prime contractor, NCS Pearson Inc., which was hired by the TSA to test, interview, fingerprint, medically evaluate and pre-certify the candidates. The audit said Pearson failed to properly justify costs and improperly awarded subcontracts without competitive bidding. The audit also said the company demonstrated a "lack of management or oversight of subcontractors."

One of the audit's key revelations is that a decision to move the hiring process from Pearson's 925 U.S. private assessment centers to 150 hotels and other meeting facilities added at least $343 million to the cost of the contract, according to an estimate by Pearson. The company said it was ordered to make the change by the TSA, which said it made the decision in collaboration with Pearson.

The decision also reduced the time Pearson had to evaluate and hire 60,000 screeners from 32 weeks to 14 because the TSA delayed the schedule, the company said. Pearson later said the decision forced the company to hire a small army of subcontractors, whose invoices and charges are at the heart of the spending highlighted in the audit.

"It was a waste of taxpayer's money," said Patrick Cowan, of Denver, who supervised hiring efforts for Pearson at 43 sites in the central part of the country. "There was abuse of the taxpayers' trust. We didn't get the bang for our buck."

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.

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.

"I paid the contractor to do that," Lieber said.

A Costly Decision

The decision to move the screener interviews to hotels from Pearson's assessment centers has been cited as one of the key reasons for the increase in the contract's cost. Exactly how the decision was made is in dispute.

The audit turned up a Pearson program-management review dated March 29, 2002, attributing the decision to TSA official Pamela E. Pearson (she has no family ties to NCS Pearson). The reason for the change: "For the purpose of efficiency," according to the Pearson review document.

When auditors asked for documentation from the TSA about the decision, the agency's legal office responded that "there was no written documentation" for the change and that the hotels and other locations were chosen by Pearson.

Pamela Pearson is now the vice president and general manager of Covenant Aviation Security LLC, a company that works with the TSA to provide private passenger screeners at airports. She denied that TSA officials directed Pearson officials to use the air marshal model and to move the work to hotels.

"We didn't specify it had to be hotels," Pamela Pearson said. "We did not dictate the method. . . . At no point in time did I direct them to use the [air marshal] model. I left it up to them."

Pamela Pearson said the idea of using the air marshal model emerged from her discussions with colleagues at the TSA and with Michael P. Jackson, then deputy transportation secretary and now second-in-command of the Department of Homeland Security.

Pearson officials maintain they were given no choice and did not make the decision themselves.

"Why would we want to change a model that we spent a lot of time preparing?" said Pearson spokeswoman Eileen Cassidy Rivera. "Why would we do that? There's no logic to it."

Current TSA officials said Pearson agreed with them to use the air marshal model. They said they took the action in consultation with Pearson because the company's original plan -- to use its own assessment centers -- was being tested at Baltimore-Washington International Airport and was not working well.

The TSA officials said they thought the air marshal model would give them more control over the hiring process, with all the work done at a central location.

To book the hotels, Pearson turned to a company called HelmsBriscoe Inc., a travel-and-event coordination firm. Even though Pearson never had a formal contract with the company, HelmsBriscoe became the hotel agent for the passenger-screening hiring effort, taking 10 percent off the top of every room it booked, according to the audit.

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."

'Deficient Costs'

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.

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