Rules Skirted, Millions Wasted on Navy Boat Barriers

By Scott Higham and Robert O'Harrow Jr.
Washington Post Staff Writers
Thursday, May 24, 2007

The men from al-Qaeda guided their bomb-laden skiff through the harbor and drew near the USS Cole, detonating a quarter-ton of C-4 plastic explosive that killed 17 sailors and tore a 40-foot hole in the side of the Navy destroyer.

Pentagon officials vowed that nothing like the Oct. 12, 2000, attack in the Yemeni port of Aden would happen again. The Naval Criminal Investigative Service embarked on a plan to shield U.S. ships around the world with rings of floating, rubberized barriers.

The investigative service is responsible for security and probing criminal wrongdoing, including fraud in Navy contracts. But auditors concluded that NCIS hired companies that did little or no significant work on the boat barriers yet collected millions of dollars in fees.

Invoices, e-mails and audit documents obtained by The Washington Post also show that the General Services Administration, the agency that awards and oversees federal contracts, allowed the Navy to sidestep federal procurement rules designed to ensure competition and protect taxpayers from abuse and fraud.

"Millions of taxpayer dollars went out the window, given to companies who did nothing in return," said Eugene L. Waszily, a former deputy GSA inspector general who reviewed spending under the boat-barrier contract. "This was particularly disturbing because it was a national security project."

Another problem emerged for the project, which cost at least $100 million. "Navy officials advised us that the barriers were prone to leaks, can deflate completely, and that defects caused barrier gates to remain open," the GSA auditors said in a 2004 report.

Eventually, NCIS investigated its own contract. NCIS officials said the GSA had "responsibility for ensuring that contracts are properly awarded and executed." An NCIS spokesman declined to elaborate or discuss the allegations, saying "there is a joint, ongoing criminal investigation into this matter."

GSA spokesman Edward Blakely said his agency had no comment.

Contracting Markup

After the Cole bombing, the Navy decided it would deploy hundreds of 82-foot-long, 8-foot-wide, floating rubberized barriers to prevent terrorists from getting close to its ships while in port. The barriers would be held in place by a system of anchors, large foam buoys and chains. A network of underwater sensors would detect potential threats.

NCIS had preferred contractors it wanted to hire for the job, auditors would find, and it did not want to undertake an elaborate and time-consuming open competition for the work.

So NCIS turned to the GSA and a program at the time reserved for small businesses that permitted government agencies to hire companies without seeking traditional bids. The program allowed government officials to buy products and services directly from companies after their prices for labor and overhead had been approved by GSA contracting officials. GSA collects user fees from companies for helping to facilitate those kinds of transactions.

In the boat-barrier case, the GSA, at the request of NCIS, selected Northern NEF of Colorado Springs as the prime contractor for the project, documents show.

Northern was a small technology firm -- small enough that did not have to compete under federal rules for government contracts unless they were worth more than $3 million. It had never worked on a boat-barrier project before, but it had worked for the Pentagon on other projects.

Northern was told by NCIS officials to hire P-Con Consulting of Alexandria. The company's sole employee was Patrick Condon, who already worked as a security consultant to NCIS. Condon received a title for his role in the project: deputy program manager for Navy boat barriers.

"Northern NEF officials said they had been directed by the Navy to procure the barriers through the consulting firm instead of dealing directly with the manufacturer," auditors wrote in a 2004 report. "We found documentary evidence that showed the consulting firm was the Navy's 'recommended' contractor."

P-Con, in turn, hired a company in England to manufacture the barriers and one in Northern Virginia to install them.

The former director of government programs for Northern, Dave Nelson, said in a recent interview that he did not know why NCIS selected his company or why his company was directed to hire P-Con.

"Northern played middleman," Nelson said.

Northern stayed below the $3 million threshold when it sought payments for the work from the GSA, invoices show. Each individual payment was approved by NCIS and the GSA as though they were separate projects, even though the work was being done under one contract.

Federal contracting regulations prohibit splitting up payments to avoid competition limits.

"Almost all of the over $53 million in boat barrier harbor tasks we analyzed were split to avoid the competitive threshold," GSA auditors wrote in their report.

Between September 2001 and February 2003, at least 30 invoices came in under the $3 million limit. Three examples:

· 55 boat barriers for $2.6 million on Sept. 28, 2001.

· 24 for $1.4 million on Oct. 1.

· 58 for $2.9 million on Oct. 12.

On May 9, 2002, three invoices came in for an identical amount -- $2,956,762 each. On Feb. 14, 2003, six invoices came in for $2,678,813 apiece.

GSA officials later told auditors they "believed each order represented a discrete boat-barrier system installed at a discrete harbor, but this was clearly not the case."

Nelson said Northern officials knew the project was being structured to stay beneath the $3 million cap. But he said company officials believed that it was being done properly by NCIS and GSA in the interests of speed and national security.

"It was pretty obvious what they were doing," said Nelson, who is now at another company. "We figured somebody who was in authority knew what they were doing. We didn't go out and try to win this work. It just came our way."

At each step in the process, Northern and P-Con received a percentage of the proceeds from the project.

For example, the base cost for each boat barrier was supposed to be $45,250. Northern charged a 4.8 percent fee for "acting as GSA's order administrator," the auditors said. P-Con charged a 7.5 percent on all expenses as a "Consultant Markup." The final cost to taxpayers for each boat barrier was $50,978.65, auditors estimated.

Even larger markups took place for the installation of the barriers and the buoys to hold them in place, documents show. The base cost for each buoy was supposed to be $31,000. The company responsible for installing the barriers added a 9.8 percent administrative fee and another unspecified 20 percent fee. Company officials told auditors the fees were the standard industry markup.

Northern charged another 5 percent fee. The final cost to taxpayers for each buoy was $42,825.68, documents show.

"Millions of dollars were wasted by compensating the contractors for doing little more than placing orders with other favored contractors to do the actual work," the auditors said.

Auditors also found that NCIS paid too much for radar, sonar video systems and a command control console to monitor boat traffic near the barriers, according to contracting documents. Fifteen sonar systems were purchased through Northern for $5.4 million. That was 40 percent more than necessary, according to the auditors.

"We concluded that free and open competition could have substantially reduced the prices for the sonar systems supplied to the Navy," the auditors wrote in their report.

The auditors concluded that Northern collected a total of $2.6 million in fees, even though "it performed none of the work." They also reported that P-Con collected more than $1 million in administrative fees.

Nelson said Northern kept little of the fees.

"They were passed along to the contractors," he said. "There was some markup that was kept."

In a brief interview, Condon disputed the auditors' findings that he collected $1 million in consulting fees for his role in the project. "That's probably not correct," he said. Condon referred questions to his lawyer, Roy Krieger.

Krieger said Condon was a "physical security" contractor at NCIS before he was recruited to manage the boat-barrier project. Condon was unaware of any inappropriate activity involving the contract, Krieger said.

Working under intense pressure, Condon earned his money by traveling the world on the project's behalf, Krieger said. Condon spent his own money on the project and is owed more than $200,000 by the government.

"This was a crash program to get this thing in place," Krieger said. "This was a fire drill when this was happening. The chief of naval operations said, 'This is never going to happen again.' "

GSA's user fees for its role in the project amounted to about 2 percent, invoices show.

In February 2003, Northern was acquired by a larger company and lost its status as a small business. As a consequence, it could no longer receive no-bid jobs from the government program. The Navy had to find another small business to serve as the prime contractor.

The new prime contractor was RMES Communications, a small business that provided coin telephone service at Denver International Airport along with "other communications technology solutions."

On Feb. 14, 2003, RMES sent the government invoices for six payments of $2,678,813 each for the boat-barrier project, according to invoices and contracting documents obtained by The Post. An RMES invoice instructed the government to deposit money in the same bank account that Northern had been using to receive funds on the project, according to the documents.

RMES President Herman Malone said in an interview that he could not recall much about the boat-barrier contract. "I'm a little cloudy in terms of the details," he said. "We were a small player in that."

In the fall of 2003, GSA auditors told NCIS officials they had turned up evidence of improprieties. The auditors wanted to question NCIS officials about the boat-barrier project, but the NCIS officials declined to discuss it, auditors reported.

Two NCIS agents later met with GSA auditors and asked about the thrust of the pending audit. The NCIS agents said they were conducting an investigation of their own and wanted to take over the case. GSA auditors agreed.

That was nearly four years ago.

Researchers Alice Crites and Rena Kirsch contributed to this article.

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