By Charles R. Babcock and Renae Merle
Washington Post Staff Writers
Monday, March 20, 2006
The consulting work that MZM Inc. received from a Pentagon agency in 2003 was for only $40,000, but to company owner Mitchell J. Wade, the face value was just the beginning.
Over the following year, the work grew to $4 million as MZM added employees that the government had not asked for; pressed successfully for the agreement to be on a "time and materials" basis so it could bill for hours worked; and left the impression that Wade could pull strings, if necessary, to get his way.
According to excerpts of e-mails collected by a Pentagon employee and provided to The Washington Post, one contract official inaccurately thought Wade was a former undersecretary of defense. Another wrote that "Mitch Wade is a force to be reckonned (sic) with . . . he has a lot of perceived power that can slow us down . . . maybe even grind us to a halt."
The recent corruption conviction of former congressman Randy "Duke" Cunningham -- and Wade's recent guilty plea for bribing him -- focused attention on Congress's practice of "earmarking," or setting aside, federal money for favored interests.
A review of the rise and fall of Wade and his company, based on interviews and MZM and government documents, shows that bribing Cunningham was only one part of Wade's formula for success. His firm, which had no prime federal contracts in fiscal 2002, collected more than $170 million over the next three years, thanks not just to Cunningham, but also to Wade's ability to take practices common among government contractors and push them to the limit.
In a tight labor market, he paid well above the going rate for workers with security clearances -- wages that left others in the government contracting industry puzzled. He freely distributed title and rank, appointing more than 100 vice presidents, executive vice presidents and "senior executive vice presidents" in a company of about 400 people. He aggressively used the "revolving door" between the government's defense and intelligence bureaucracy and the private industry, attracting top talent and often sending new hires back to work on contracts at their former agencies and to try to cultivate new business.
MZM was able as the sole bidder to win a "blanket purchase agreement" for up to $225 million over five years in Pentagon technology work, though procurement regulations require at least three competitive bids.
Kenneth L. Wainstein, U.S. attorney for the District, said after Wade's guilty plea that the agreement amounted to "a $225 million blank check drawn on taxpayer funds."
Cunningham admitted accepting at least $2.4 million from Wade and three other men over the past several years in return for official favors, including steering money for contracts their way. The California Republican was sentenced to eight years and four months in prison earlier this month. That was a week after Wade pleaded guilty to four felony counts for his role in the case. MZM was sold last summer to a New York investment firm, which changed its name but kept many of its contracts and people.
Wade, who declined an interview request through his lawyer, had learned the intricacies of the procurement system from the inside. He was a civilian worker at the Pentagon, working at times on classified programs, from the mid-1980s to the early 1990s. He then became a consultant to Brent Wilkes, a San Diego defense contractor who was so close to Cunningham that competitors complained the congressman was giving Wilkes's company favored treatment. In the following years, Wade supplanted Wilkes as Cunningham's favorite, and Wilkes -- who has been implicated but not charged in the scandal -- ended up as an MZM subcontractor.
Wade first bribed Cunningham on Nov. 16, 2001, according to prosecutors' court papers. That Friday, barely two months after the terrorist attacks on New York and Washington, the contractor bought the congressman $12,000 worth of antiques, and Cunningham told Wade that he would make him "somebody." At the time, the government filings said, MZM had contracts of less than $1 million a year.
Their partnership became apparent early the next year as Wade requested a $15 million earmark for a counterintelligence program. He was also working at the time to get on the General Services Administration's schedule of companies authorized to seek federal business, a prelude to the broader intelligence-related "blanket purchase agreement" he pursued that summer and fall.
Cunningham requested that $7.5 million be set aside for MZM's program and made it his first priority, according to his office's internal chart, which prosecutors filed as an exhibit. The House approved the earmark in June, and it passed Congress as part of the defense appropriations bill in October, though at a slightly reduced level.
The GSA officials who approved MZM's application to join its schedule were supposed to ensure that the hourly labor rates Wade charged were "fair and reasonable." They were, however, higher than some other contractors from the region offering the same types of services, according to labor rates published by the GSA.
According to several sources inside and outside the company, including some former employees, Wade attracted staff by offering tens of thousands of dollars more than the going salary. The sources agreed to speak only on condition of anonymity because of the sensitivity of the subject. As his company grew, he hired people like retired Army Lt. Gen. James King, who held several high positions at Pentagon intelligence agencies and now runs Athena Innovative Solutions Inc., MZM's successor company. Wade also hired David Holmes, a former CIA lawyer; John Quattrocki, a high-ranking FBI officer; and Kay Coles James, the former head of the Bush administration's Office of Personnel Management.
The blanket purchase agreement, signed with a Defense Department contracting office in September of 2002, was written so broadly that any agency inside or outside the Pentagon could order a wide variety of help. It seemed crafted for the Bush administration's post-Sept. 11 push for more defense and intelligence spending. It referred to homeland security, law enforcement planning, geospatial integration, document exploitation and what is called MASINT, for measurement and signature intelligence.
The Defense Information Systems Agency refused to answer questions about how it selected MZM. But it announced last summer, after Wade's relationship with Cunningham was exposed, that it was cutting off further work. It said it realized Wade's company was the only one that responded to its initial request, when federal regulations required three bidders.
To ensure that MZM "could milk that account without interruption or interference" from the Defense Department officials who oversaw the contract, Wade enticed them with personal favors, the government said in court documents filed along with Wade's guilty plea. He hired the son of one Defense Department official at the Army's National Ground Intelligence Center in Charlottesville in early 2002, when MZM was still a subcontractor. In return, the official gave MZM inside information and favorable performance reviews ensuring further work, prosecutors alleged.
The matter is still under investigation.
The first order under the blanket agreement was in October 2002, a $193,281 order to do a "concept report" of a computer system in Charlottesville. Wade apparently felt so confident of his company's future with the ground intelligence center that he opened an office nearby.
The next order, in late January 2003, was much larger, though the client for the $6.1 million contract isn't clear from sketchy descriptions released under the Freedom of Information Act. A few weeks later, MZM got an order for $12.7 million.
Two days after the war in Iraq started, MZM won a $1.2 million contract to provide interpreters for "post conflict" work. And in March, Wade's company got a $6.2 million contract, this one with the Pentagon's new Counter Intelligence Field Activity. In fiscal 2003, MZM got a total of $38.6 million in orders through the blanket purchase agreement.
That climbed to $65 million, then $60 million in the following two years, as Cunningham continued to add earmarks to make more money available for programs Wade worked on, and the contractor continued his bribes for the congressman. Those included the use of a 42-foot yacht renamed the Duke-Stir, a used Rolls Royce, more antiques and the purchase of his home in San Diego for $700,000 more than it was worth -- even a check for $115,100 to pay the capital gains on Cunningham's inflated profit on the home sale.
As MZM's revenue soared, so did Wade's personal spending. He and his second wife owned a $3 million house in Kalorama. He took his staff on outings to the Greenbrier resort and Bermuda. He started the Sure Foundation, named after a Christian verse, to help children around the world who were victims of war and unrest.
The global war on terror was good for business. There was lots of work at the National Ground Intelligence Center and the Counterintelligence Field Activity. The Pentagon called on MZM to help seek counters to roadside bombs in Iraq. The Special Operations Command in Tampa needed help too. And thanks to an earmark from Rep. Virgil H. Goode Jr. (R-Va.), MZM was picked to run a Foreign Supplier Assessment Center in Martinsville, Va., to check out foreign-based contractors.
Last July, a month after the San Diego Union-Tribune triggered the investigation by disclosing the home sale, the Pentagon was still telling Cunningham's office that money was in the pipeline for his latest MZM earmarks.
Staff researchers Alice Crites, Madonna Lebling and Meg Smith and staff writer R. Jeffrey Smith contributed to this story.