DHS Erred in $475 Million Contract Given to Native Firm

By Spencer S. Hsu
Washington Post Staff Writer
Tuesday, November 20, 2007

The Department of Homeland Security improperly awarded a half-billion-dollar, no-bid contract in 2003 to a little-known company to maintain thousands of X-ray, radiation and other screening machines at U.S. border checkpoints, incorrectly designating the firm a disadvantaged small business, according to a report by the department's inspector general.

The annual revenue of Chenega Technology Services, a firm owned by Alaska Natives and based in Fairfax County, was too high to qualify for the nine-year, $475 million contract, the report said. After the contract was awarded, the department's U.S. Customs and Border Protection agency also failed to ensure that Chenega did not pass most of the work to large federal subcontractors, and the company failed for four years -- until last month -- to deliver a management system that would achieve savings to justify its middleman role.

CBP's rush to use "an incorrect industry classification that enabled a sole source award likely did not provide the government the best value," stated a 30-page report signed by Inspector General Richard L. Skinner and dated Oct. 30. The report added: "CBP did not comply with federal regulations. . . . CBP did not effectively monitor the contract."

The sharply critical document was obtained by The Washington Post from sources familiar with the investigation.

Alaska Native corporations have favored status under federal laws that encourage American Indian participation in federal contracting. Such legislation has been introduced most prominently by Sen. Ted Stevens (R-Alaska), former chairman of the Senate Appropriations Committee. But the measures have drawn significant scrutiny and questions about whom they benefit.

Ryan Alexander, president of Taxpayers for Common Sense, a watchdog group, said the power of Alaska's delegation and Stevens in particular raises several questions. "Why did somebody make this happen? Is part of the reason someone made this happen to satisfy an important member of Congress? . . . How was this mistake made?"

Speaking on the condition of anonymity, citing Stevens's influence on Capitol Hill, a congressional aide familiar with the report said, "I would hope the Congress would take a long, hard look at conditions that allow a company to improperly get a half-billion-dollar no-bid contract."

A spokesman for Stevens, who has been targeted in a sprawling federal investigation into public corruption in Alaska, said the senator had no comment "because awarding of contracts is a matter rightly between both the federal agency and the bidder."

At the time, CBP called the $475 million contract the largest civilian award made to a small and disadvantaged firm in 50 years.

Facing a tight deadline, CPB contracting officers reclassified Chenega in order to avoid delays in awarding the contract and also to meet the agency's small-business set-aside target for the fiscal year ending in September 2003, the inspector general said.

The report also stated that CBP failed to monitor whether Chenega violated federal regulations that bar it from passing more than half the contract's labor costs to subcontractors such as SAIC and subsidiaries of General Dynamics and L-3 Communications, and that CBP and Chenega disagreed over whether the agency directed the company to subcontract with specific firms.

Chenega chief executive Ken Ogden did not return calls for comment, and a source close to Chenega said the company could not respond because of contract requirements.

But the source added, "The government is responsible for selecting the industry classification code. . . . CBP contractually directed use of certain subcontractors and CTSC [Chenega] was and is in full compliance" with federal requirements. The source also said that Chenega executives are unaware of any other investigations into the contract.

CBP spokesman Mike Friel said the agency concurs with the inspector general's recommendations to improve training and oversight and has a corrective plan in place. However, he added, "CBP's position . . . is that we complied with federal regulations to award this contract."

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