Costs Skyrocket As DHS Runs Up No-Bid Contracts

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By Robert O'Harrow Jr.
Washington Post Staff Writer
Thursday, June 28, 2007

The project started in 2003 with a $2 million contract to help the new Department of Homeland Security quickly get an intelligence operation up and running.

Over the next year, the cost of the no-bid arrangement with consultant Booz Allen Hamilton soared by millions of dollars per month, as the firm provided analysts, administrators and other contract employees to the department's Information Analysis and Infrastructure Protection offices.

By December 2004, payments to Booz Allen had exceeded $30 million -- 15 times the contract's original value. When department lawyers examined the deal, they found it was "grossly beyond the scope" of the original contract, and they said the arrangement violated government procurement rules. The lawyers advised the department to immediately stop making payments through the contract and allow other companies to compete for the work.

But the competition did not take place for more than a year. During that time, the payments to Booz Allen more than doubled again under a second no-bid arrangement, to $73 million, according to internal documents, e-mail and interviews.

The arrangements with the McLean consulting firm, one of the nation's largest government contractors, illustrate a transformation in the way the federal government often gets its work done: by relying on private, sometimes costly consultants to fill staffing shortfalls in federal agencies.

Contracting specialists said companies are increasingly being called upon to handle duties once considered appropriate only for government workers. And because the number of federal procurement workers responsible for overseeing spending has not kept pace, the spending on such contracts often soars far beyond approved estimates, the specialists said.

Elaine C. Duke, the department's chief procurement officer, acknowledged the problems with the Booz Allen contract in a recent interview. She said that the "contracting officers were stretched thin" and that the managers running the program were unable to provide clear guidance about what they needed to buy. But Duke said those matters have been resolved. She defended a decision to issue a second no-bid contract in 2005 as necessary to keep an essential intelligence operation running until a competition could be held.

"It was the best out of the choices that we had on the table at the time," she said. "We couldn't have a gap in mission."

Booz Allen vice president Jack Mayer said his firm did quality work, followed federal rules and charged fair prices. Mayer said Booz Allen was prepared to compete with other companies for the work. He said the cost of the project ballooned because demands from the department's offices kept expanding.

"What happened was the hours that people were working," he said. "It wasn't Booz Allen's fault."

A review of memos, e-mail and other contracting documents obtained by The Washington Post show that in a rush to meet congressional mandates to establish the information analysis and infrastructure protection offices, agency officials routinely waived rules designed to protect taxpayer money. As the project progressed, the department became so dependent on Booz Allen that it lost the flexibility for a time to seek out other contractors or hire federal employees who might do the job for less.

The average annual cost of a contract employee is $250,000, almost twice that of a federal employee, according to an estimate recently cited by the Senate Select Committee on Intelligence.


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© 2007 The Washington Post Company

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