Correction to This Article
A March 25 article about the Coast Guard's Deepwater program incorrectly said that former homeland security secretary Tom Ridge declined to comment. Ridge said that when he joined the board of a company later bought by Lockheed Martin, the firm had no plans to sell and expected to grow as a stand-alone company.
Coast Guard's Purchasing Raises Conflict-of-Interest Flags

By Spencer S. Hsu and Renae Merle
Washington Post Staff Writers
Sunday, March 25, 2007

Four of the seven top U.S. Coast Guard officers who retired since 1998 took positions with private firms involved in the Coast Guard's troubled $24 billion fleet replacement program, an effort that government investigators have criticized for putting contractors' interests ahead of taxpayers'.

They weren't the only officials to oversee one of the federal government's most complex experiments at privatization, known as Deepwater, who had past or subsequent business ties to the contract consortium led by industry giants Northrop Grumman and Lockheed Martin.

The secretary of transportation, Norman Y. Mineta, whose department included the Coast Guard when the contract was awarded in 2002, was a former Lockheed executive. Two deputy secretaries of the Department of Homeland Security, which the Coast Guard became part of in 2003, were former Lockheed executives, and a third later served on its board.

Washington's revolving-door laws have long allowed officials from industry giants such as Lockheed, the nation's largest defense contractor, to spend parts of their careers working for U.S. security agencies that make huge purchases from those companies, though there are limits.

But Deepwater dramatizes a new concern, current and former U.S. officials said: how dwindling competition in the private sector, mushrooming federal defense spending and the government's diminished contract management skills raise the stakes for potential conflicts of interest.

Deepwater also illustrates how federal ethics rules carve out loopholes for senior policymakers to oversee decisions that may benefit former or prospective employers. These include outsourcing strategies under which taxpayers bear most of the risks for failure, analysts said.

There is no sign that any of the retired admirals or former Lockheed officials did anything illegal.

But the connections between the agencies and the contractors have drawn the attention of the DHS inspector general, Richard L. Skinner. "That is on our radar screen," he said. "It's something we are very sensitive to."

Skinner told House members last month that the Coast Guard -- acting "under the dominant influence" of haste and inadequate staffing -- signed a Deepwater contract in June 2002 that improperly turned over key design and oversight decisions to contractors.

The Coast Guard failed to hold them accountable and left its own commanders "reluctant . . . to exercise a sufficient degree of authority to influence the design and production" of its vessels, Skinner said.

So far, four major classes of ships planned or produced for Deepwater have design flaws that have limited their performance, raised costs or delayed production. The tab for eight dry-docked 123-foot patrol boats alone is $100 million and climbing, the Coast Guard commandant, Adm. Thad W. Allen, has said.

"The Treasury is being looted here. The taxpayer is being fleeced," Rep. Stephen F. Lynch (D-Mass.) said in a House hearing into Deepwater earlier this year.

Led by the Pentagon and the DHS, spending on federal contracts has soared in recent years. The DHS staff that oversees outside contracts is the most overwhelmed of any in government, officials said.

An expert panel appointed by the White House and Congress found this winter that increased reliance on contractors threatens to "undermine the integrity of the government's decision making processes." Handing off traditional governmental duties -- such as designing major systems and managing huge contracts -- coupled with defense industry consolidation, "increased the potential for organizational conflicts of interest," the panel found.

Even for those sympathetic to the purpose of allowing the revolving door, Deepwater is troubling. Steven L. Schooner, procurement expert at George Washington University Law School, said "cross-fertilizing" defense and homeland security experts generally makes the private sector a more responsive seller and government a smarter buyer. But he warned that job-switching has expanded beyond mid-level experts to top U.S. decision makers, and competition among a handful of defense giants is at an ebb.

"The most significant pathology we face today is the lack of a robust competitive marketplace" for large weapons systems, Schooner said. "If I know there's really only one contractor that might want my experience when I retire from the government," he said, "the remainder of my career might be reduced to positioning myself to step in to that company in a certain way."

In dealings with former private-sector colleagues, senior U.S. officials may be too willing to yield "the benefit of the doubt, rather than look . . . with skepticism or even with a watchful eye," added Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, a watchdog group.

In interviews or through spokesmen, Mineta; Michael P. Jackson, Mineta's deputy in 2002 and now deputy secretary at the DHS; Philip J. Perry, a former Lockheed Martin lobbyist who was the department's general counsel until last month; and other officials said they had complied with all federal ethics requirements. All said they had no involvement in procurement decisions, gave up Lockheed-related assets, recused themselves from activities involving the firm or performed their duties more than one year after ending their Lockheed roles.

Retired Coast Guard Adm. James M. Loy, who helped formulate Deepwater as the Coast Guard's commandant, said that to his knowledge "that array of players, either in their political positions, or civilian commercial positions, or in retired Coast Guard positions" has never been linked "to undue influence." Loy served two years as DHS deputy secretary, then joined Lockheed's board of directors in August 2005.

Asked whether he ever faced improper influence on Deepwater decisions, Loy said: "The question is almost insulting. I will pass on giving you any kind of answer."

Key leaders of the Coast Guard and its parent departments were among the biggest backers of the Deepwater concept. When Jackson announced the Deepwater award at the Transportation Department in 2002, he called it a model for tapping industry's best ideas by giving contractors free rein to decide how agencies complete their missions.

As chief operating officer for the departments of Transportation and Homeland Security, Jackson has championed some of the government's largest outsourcing efforts, including the creation of the Transportation Security Administration. He has come under fire for some of its costliest missteps involving windfall contracts to hire airport screeners as well as technically flawed efforts to improve border security.

Given the number of companies involved in Deepwater and Lockheed's giant presence in the national security market, some amount of crossover is probably difficult to avoid, experts said.

For instance, Lockheed bought a firm last year whose board of directors included former DHS secretary Tom Ridge. Ridge joined the company shortly after leaving office in 2005, so the purchase yielded him a stock windfall. Ridge declined to comment, but he told the Philadelphia Inquirer in December that he and the company had followed ethics guidelines. When DHS Undersecretary Asa Hutchinson stepped down in March 2005, he joined Washington law and lobbying firm Venable LLP, whose clients include Lockheed.

Private analysts said the government has balked at investing the years, money and legislative effort it would take to strengthen contract management, or to expand the one-year "cooling-off" period that generally limits activities by officials moving between the private and public sectors.

Nevertheless, government investigators said Deepwater went too far in empowering the Lockheed-Northrop consortium to award business to subsidiaries, self-certify the planes and ships it produced, and disregard Coast Guard experts.

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