Costs Skyrocket As DHS Runs Up No-Bid Contracts

In May 2003, the Department of Homeland Security was trying to organize itself following the merger of 22 agencies. It immediately began to rely heavily on contractors to staff its operations and outfit offices with computer systems and other technology.

One of the core tasks it faced was the creation of operations that would analyze potential threats and protect government facilities, power plants and other parts of the nation's infrastructure. The department's offices were to be responsible for supporting the anti-terrorism efforts of other local, state and federal agencies, as well as the private sector, by sharing information about possible threats, government documents show.

The newly created department, however, had only a skeleton procurement staff. So it turned to the Department of Veterans Affairs to handle the contract award. Veterans Affairs officials in turn hired Booz Allen through the General Services Administration. Booz Allen is one of the government's biggest contractors, with about $2 billion in federal revenue, and had done extensive work for defense and intelligence agencies. The GSA had preapproved Booz Allen to provide engineering and professional services to federal agencies at set labor rates.

Such inter-agency arrangements offer flexibility to government agencies. But audits have found they can lead to diminished oversight and accountability. That's because responsibility for monitoring spending and work is divided among agencies.

Auditors at the Government Accountability Office said Homeland Security officials acknowledged that they often used such arrangements for the "speed and convenience -- not total value including cost." The GAO report last year cited the contract with Booz Allen as an example where there was insufficient planning and "no assurance of good value."

As the work at the Homeland Security offices grew, spending on labor costs quickly surpassed the original estimate and mounted throughout 2003 and 2004.

One indication of the minimal oversight:

In fall 2004, while the contract was administered by Veterans Affairs, Booz Allen took on a variety of tasks without government approval for as long as seven weeks, according to an e-mail by a Homeland Security procurement official. "VA never Oked the work, by an order or verbally," contracting officer Paul Attorri wrote.

A Booz Allen spokesman said details about the apparent lapse were unavailable. But he said the firm had a valid contract during the period in question.

On Dec. 21, 2004, the Homeland Security Department decided it was time to take back control of the contract's management from Veterans Affairs. Department lawyers and procurement officials soon discovered that the deal "had grown many magnitudes beyond its original $2M,"Attorri wrote in an e-mail.

The discovery put Homeland Security officials in a hard place. The department had become so reliant on Booz Allen for support that contracting officials said the information analysis office "would not be able to function, let alone attempt to carry out their missions" without the firm's employees, a contracting official later wrote.

That support work included intelligence analysis, preparation of congressional reports, budget activities and other tasks crucial to the operation of the office, documents show.